UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



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

For the quarterly period ended June 30, ~~2017~~2018



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

For the transition period from _____________ to _____________

Commission File Number: 001-32641

BROOKDALE SENIOR LIVING INC.

(Exact name of registrant as specified in its charter)



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



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

(615) 221-2250

(Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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



Large accelerated filer	x		Accelerated filer	¨
Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	¨
			Emerging growth company	¨

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

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

As of August ~~4, 2017, 186,278,661~~3, 2018, 187,655,268 shares of the registrant's common stock, $0.01 par value, were outstanding (excluding unvested restricted shares).

TABLE OF CONTENTS

BROOKDALE SENIOR LIVING INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, ~~2017~~2018



		PAGE
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets -
	As of June 30, ~~2017~~2018 (Unaudited) and December 31, ~~2016~~2017	3

	Condensed Consolidated Statements of Operations -
	Three and six months ended June 30, ~~2017~~2018 and ~~2016~~2017 (Unaudited)	4

	Condensed Consolidated Statement of Equity -
	Six months ended June 30, ~~2017~~2018 (Unaudited)	5

	Condensed Consolidated Statements of Cash Flows -
	Six months ended June 30, ~~2017~~2018 and ~~2016~~2017 (Unaudited)	6

	Notes to Condensed Consolidated Financial Statements (Unaudited)	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2430

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5063

Item 4.	Controls and Procedures	5063


PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	5063

Item 1A.	Risk Factors	5063

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5163

Item 6.	Exhibits	5164

Signatures		5266

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BROOKDALE SENIOR LIVING INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except stock amounts)


	June 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Assets	(Unaudited)						(Unaudited)
Current assets
Cash and cash equivalents	$	151,528		$	216,397		$	126,637		$	222,647
Marketable securities	29,779			—			19,991			291,796
Cash and escrow deposits – restricted	38,440			32,864
Restricted cash							39,015			37,189
Accounts receivable, net	129,748			141,705			118,005			128,961
Assets held for sale	91,013			97,843			141,104			106,435
Prepaid expenses and other current assets, net	120,416			130,695			106,394			114,844
Total current assets	560,924			619,504			551,146			901,872
Property, plant and equipment and leasehold intangibles, net	6,423,841			7,379,305			5,715,931			5,852,145
Cash and escrow deposits – restricted	24,206			28,061
Restricted cash							25,010			22,710
Investment in unconsolidated ventures	196,854			167,826			32,018			129,794
Goodwill	710,783			705,476			154,131			505,783
Other intangible assets, net	79,509			83,007			59,817			67,977
Other assets, net	196,675			234,508			191,594			195,168
Total assets	$	8,192,792		$	9,217,687		$	6,729,647		$	7,675,449
Liabilities and Equity
Current liabilities
Current portion of long-term debt	$	555,685		$	145,649		$	250,906		$	495,413
Current portion of capital and financing lease obligations	59,719			69,606			27,942			107,088
Trade accounts payable	78,004			77,356			79,713			91,825
Accrued expenses	289,495			328,037			306,278			329,966
Refundable entrance fees and deferred revenue	91,312			106,946			68,508			68,358
Tenant security deposits	3,333			3,548			2,823			3,126
Total current liabilities	1,077,548			731,142			736,170			1,095,776
Long-term debt, less current portion	3,042,123			3,413,998			3,471,220			3,375,324
Capital and financing lease obligations, less current portion	1,531,545			2,415,914			1,066,236			1,164,466
Deferred liabilities	241,287			267,364			261,532			224,304
Deferred tax liability	166,326			80,646			69,749			70,644
Other liabilities	218,061			230,891			204,083			214,644
Total liabilities	6,276,890			7,139,955			5,808,990			6,145,158
Preferred stock, $0.01 par value, 50,000,000 shares authorized at June 30, 2017 and December 31, 2016; no shares issued and outstanding	—			—
Common stock, $0.01 par value, 400,000,000 shares authorized at June 30, 2017 and December 31, 2016; 194,804,794 and 193,224,082 shares issued and 191,626,393 and 190,045,681 shares outstanding (including 5,358,640 and 4,608,187 unvested restricted shares), respectively	1,916			1,900
Preferred stock, $0.01 par value, 50,000,000 shares authorized at June 30, 2018 and December 31, 2017; no shares issued and outstanding							—			—
Common stock, $0.01 par value, 400,000,000 shares authorized at June 30, 2018 and December 31, 2017; 196,976,288 and 194,454,329 shares issued and 193,797,887 and 191,275,928 shares outstanding (including 6,145,795 and 4,770,097 unvested restricted shares), respectively							1,938			1,913
Additional paid-in-capital	4,113,249			4,102,397			4,139,353			4,126,549
Treasury stock, at cost; 3,178,401 shares at June 30, 2017 and December 31, 2016	(56,440		)	(56,440		)
Treasury stock, at cost; 3,178,401 shares at June 30, 2018 and December 31, 2017							(56,440		)	(56,440		)
Accumulated deficit	(2,142,466		)	(1,969,875		)	(3,163,690		)	(2,541,294		)
Total Brookdale Senior Living Inc. stockholders' equity	1,916,259			2,077,982			921,161			1,530,728
Noncontrolling interest	(357		)	(250		)	(504		)	(437		)
Total equity	1,915,902			2,077,732			920,657			1,530,291
Total liabilities and equity	$	8,192,792		$	9,217,687		$	6,729,647		$	7,675,449

See accompanying notes to condensed consolidated financial statements.

BROOKDALE SENIOR LIVING INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Revenue
Resident fees	$	934,070		$	1,054,568		$	1,950,997		$	2,115,716		$	895,969		$	934,070		$	1,802,235		$	1,950,997
Management fees	22,442			18,186			38,336			34,966			17,071			22,442			35,752			38,336
Reimbursed costs incurred on behalf of managed communities	229,960			186,076			413,905			371,304			242,160			229,960			504,447			413,905
Total revenue	1,186,472			1,258,830			2,403,238			2,521,986			1,155,200			1,186,472			2,342,434			2,403,238

Expense
Facility operating expense (excluding depreciation and amortization of $105,673, $118,808, $220,552, and $232,911, respectively)	642,405			693,103			1,316,947			1,409,005
General and administrative expense (including non-cash stock-based compensation expense of $7,246, $8,994, $15,020 and $18,763, respectively)	67,090			90,695			132,650			183,316
Facility operating expense (excluding depreciation and amortization of $105,316, $105,673, $208,484, and $220,552, respectively)													627,076			642,405			1,259,401			1,316,947
General and administrative expense (including non-cash stock-based compensation expense of $6,269, $7,246, $14,675, and $15,020, respectively)													60,314			67,090			137,024			132,650
Transaction costs	3,339			441			10,932			1,291			2,593			3,339			7,318			10,932
Facility lease expense	84,690			92,682			173,497			189,371			81,960			84,690			162,360			173,497
Depreciation and amortization	120,887			133,394			248,374			260,531			116,116			120,887			230,371			248,374
Asset impairment	1,559			4,152			22,265			7,527
Loss on facility lease termination	6,368			—			6,368			—
Goodwill and asset impairment													16,103			1,559			446,466			22,265
Loss on facility lease termination and modification, net													146,467			6,368			146,467			6,368
Costs incurred on behalf of managed communities	229,960			186,076			413,905			371,304			242,160			229,960			504,447			413,905
Total operating expense	1,156,298			1,200,543			2,324,938			2,422,345			1,292,789			1,156,298			2,893,854			2,324,938
Income from operations	30,174			58,287			78,300			99,641
Income (loss) from operations													(137,589		)	30,174			(551,420		)	78,300

Interest income	804			728			1,435			1,430			2,941			804			5,924			1,435
Interest expense:
Debt	(41,517		)	(43,731		)	(82,090		)	(87,721		)	(48,967		)	(41,517		)	(94,694		)	(82,090		)
Capital and financing lease obligations	(32,228		)	(50,581		)	(82,087		)	(101,160		)	(22,389		)	(32,228		)	(45,320		)	(82,087		)
Amortization of deferred financing costs and debt premium (discount)	(2,692		)	(2,288		)	(5,283		)	(4,598		)	(2,328		)	(2,692		)	(6,284		)	(5,283		)
Change in fair value of derivatives	(39		)	(4		)	(85		)	(28		)	(217		)	(39		)	(143		)	(85		)
Debt modification and extinguishment costs	(693		)	(186		)	(754		)	(1,296		)	(9		)	(693		)	(44		)	(754		)
Equity in (loss) earnings of unconsolidated ventures	(4,570		)	338			(3,589		)	1,356
(Loss) gain on sale of assets, net	(547		)	(198		)	(1,150		)	2,551
Equity in loss of unconsolidated ventures													(1,324		)	(4,570		)	(5,567		)	(3,589		)
Gain (loss) on sale of assets, net													23,322			(547		)	66,753			(1,150		)
Other non-operating income	2,236			2,267			3,898			7,305			5,505			2,236			8,091			3,898
Income (loss) before income taxes	(49,072		)	(35,368		)	(91,405		)	(82,520		)	(181,055		)	(49,072		)	(622,704		)	(91,405		)
Benefit (provision) for income taxes	2,735			(123		)	(81,293		)	(1,788		)	15,546			2,735			(39		)	(81,293		)
Net income (loss)	(46,337		)	(35,491		)	(172,698		)	(84,308		)	(165,509		)	(46,337		)	(622,743		)	(172,698		)
Net (income) loss attributable to noncontrolling interest	50			41			107			83			21			50			67			107
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders	$	(46,287	)	$	(35,450	)	$	(172,591	)	$	(84,225	)	$	(165,488	)	$	(46,287	)	$	(622,676	)	$	(172,591	)

Basic and diluted net income (loss) per share attributable to Brookdale Senior Living Inc. common stockholders	$	(0.25	)	$	(0.19	)	$	(0.93	)	$	(0.45	)	$	(0.88	)	$	(0.25	)	$	(3.33	)	$	(0.93	)

Weighted average shares used in computing basic and diluted net income (loss) per share	186,212			185,825			185,952			185,489			187,585			186,212			187,234			185,952

See accompanying notes to condensed consolidated financial statements.

BROOKDALE SENIOR LIVING INC.

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

Six Months Ended June 30, ~~2017~~2018

(Unaudited, in thousands)


	Common Stock																							Common Stock					Additional Paid-In- Capital				Treasury Stock			Accumulated Deficit			Stockholders' Equity			Noncontrolling Interest			Total Equity
	Shares		Amount			Additional Paid-In- Capital			Treasury Stock			Accumulated Deficit			Stockholders' Equity			Noncontrolling Interest			Total Equity			Shares		Amount										Accumulated Deficit			Stockholders' Equity			Noncontrolling Interest			Total Equity
Balances at January 1, 2017	190,046		$	1,900		$	4,102,397		$	(56,440	)	$	(1,969,875	)	$	2,077,982		$	(250	)	$	2,077,732
Balances at January 1, 2018																								191,276		$	1,913		Additional Paid-In- Capital			$	Treasury Stock	4,126,549		$	(56,440	)	$	(2,541,294	)	$	1,530,728		$	(437	)	$	1,530,291
Compensation expense related to restricted stock grants	—		—			15,020			—			—			15,020			—			15,020			—		—			14,675				—			—			14,675			—			14,675
Net income (loss)	—		—			—			—			(172,591		)	(172,591		)	(107		)	(172,698		)	—		—			—				—			(622,676		)	(622,676		)	(67		)	(622,743		)
Issuance of common stock under Associate Stock Purchase Plan	80		1			1,053			—			—			1,054			—			1,054			111		1			769				—			—			770			—			770
Restricted stock, net	1,864		19			(19		)	—			—			—			—			—			2,805		28			(28		)		—			—			—			—			—
Shares withheld for employee taxes	(364	)	(4		)	(5,316		)	—			—			(5,320		)	—			(5,320		)	(394	)	(4		)	(2,711		)		—			—			(2,715		)	—			(2,715		)
Other	—		—			114			—			—			114			—			114
Balances at June 30, 2017	191,626		$	1,916		$	4,113,249		$	(56,440	)	$	(2,142,466	)	$	1,916,259		$	(357	)	$	1,915,902
Other, net																								—		—			99				—			280			379			—			379
Balances at June 30, 2018																								193,798		$	1,938		$	4,139,353			$	(56,440	)	$	(3,163,690	)	$	921,161		$	(504	)	$	920,657

See accompanying notes to condensed consolidated financial statements.

BROOKDALE SENIOR LIVING INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	Six Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2018			2017
Cash Flows from Operating Activities
Net income (loss)	$	(172,698	)	$	(84,308	)	$	(622,743	)	$	(172,698	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Loss on extinguishment of debt, net	96			139
Debt modification and extinguishment costs							44			754
Depreciation and amortization, net	253,657			265,129			236,655			253,657
Asset impairment	22,265			7,527
Equity in earnings of unconsolidated ventures	3,589			(1,356		)
Goodwill and asset impairment							446,466			22,265
Equity in loss of unconsolidated ventures							5,567			3,589
Distributions from unconsolidated ventures from cumulative share of net earnings	892			—			1,147			892
Amortization of deferred gain	(2,186		)	(2,186		)	(2,179		)	(2,186		)
Amortization of entrance fees	(2,030		)	(1,939		)	(837		)	(2,030		)
Proceeds from deferred entrance fee revenue	3,952			7,458			1,398			3,952
Deferred income tax provision	80,373			332
Change in deferred lease liability	(6,126		)	3,412
Deferred income tax (benefit) provision							(991		)	80,373
Straight-line lease (income) expense							(8,595		)	(6,126		)
Change in fair value of derivatives	85			28			143			85
Loss (gain) on sale of assets, net	1,150			(2,551		)
Loss on facility lease termination	6,368			—
Non-cash stock-based compensation	15,020			18,763
(Gain) loss on sale of assets, net							(66,753		)	1,150
Loss on facility lease termination and modification, net							133,423			6,368
Non-cash stock-based compensation expense							14,675			15,020
Non-cash interest expense on financing lease obligations	10,021			13,014			6,446			10,021
Amortization of (above) below market lease, net	(3,394		)	(3,466		)	(3,574		)	(3,394		)
Non-cash management contract termination fee							(5,076		)	—
Other	(2,969		)	(3,597		)	(156		)	(2,969		)
Changes in operating assets and liabilities:
Accounts receivable, net	11,957			5,439			10,956			11,957
Prepaid expenses and other assets, net	18,979			(16,845		)	1,878			18,979
Accounts payable and accrued expenses	(47,982		)	(23,133		)
Trade accounts payable and accrued expenses							(57,615		)	(47,982		)
Tenant refundable fees and security deposits	(215		)	38			(303		)	(215		)
Deferred revenue	9,070			(4,059		)	8,608			9,070
Net cash provided by operating activities	199,874			177,839			98,584			200,532

Cash Flows from Investing Activities
Change in lease security deposits and lease acquisition deposits, net	5			(1,538		)	(2,962		)	5
Change in cash and escrow deposits — restricted	(1,721		)	355
Purchase of marketable securities	(29,779		)	—
Sale of marketable securities, net							273,273			(29,779		)
Additions to property, plant and equipment and leasehold intangibles, net	(89,570		)	(190,060		)	(120,458		)	(89,570		)
Acquisition of assets, net of related payables and cash received	(400		)	(12,157		)	(271,320		)	(400		)
Investment in unconsolidated ventures	(186,166		)	(3,733		)	(8,864		)	(186,166		)
Distributions received from unconsolidated ventures	8,045			3,602			9,397			8,045
Proceeds from sale of assets, net	34,455			45,584			130,897			34,455
Property insurance proceeds	2,969			3,597			156			2,969
Other	947			(2,386		)	1,393			947
Net cash used in investing activities	(261,215		)	(156,736		)

Net cash provided by (used in) investing activities							11,512			(259,494		)
Cash Flows from Financing Activities
Proceeds from debt	92,571			192,128			279,919			92,571
Repayment of debt and capital and financing lease obligations	(89,204		)	(128,427		)	(466,267		)	(89,204		)
Proceeds from line of credit	—			894,500			200,000			—
Repayment of line of credit	—			(1,018,000		)	(200,000		)	—
Payment of financing costs, net of related payables	(523		)	(641		)	(3,191		)	(1,181		)
Proceeds from refundable entrance fees, net of refunds	(1,554		)	(599		)	52			(1,554		)
Payment on lease termination	(552		)	(9,250		)
Payments for lease termination							(10,548		)	(552		)
Payments of employee taxes for withheld shares	(5,320		)	(968		)	(2,715		)	(5,320		)
Other	1,054			1,178			770			1,054
Net cash used in financing activities	(3,528		)	(70,079		)	(201,980		)	(4,186		)
Net decrease in cash and cash equivalents	(64,869		)	(48,976		)
Cash and cash equivalents at beginning of period	216,397			88,029
Cash and cash equivalents at end of period	$	151,528		$	39,053
Net decrease in cash, cash equivalents and restricted cash							(91,884		)	(63,148		)
Cash, cash equivalents and restricted cash at beginning of period							282,546			277,322
Cash, cash equivalents and restricted cash at end of period							$	190,662		$	214,174

See accompanying notes to condensed consolidated financial statements.

BROOKDALE SENIOR LIVING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business

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

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited ~~interim~~ condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("US GAAP") for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for quarterly reports on Form 10-Q. In the opinion of management, these financial statements include all adjustments necessary to present fairly the financial position, results of operations and cash flows of the Company as of June 30, ~~2017,~~2018, and for all periods presented. The condensed consolidated financial statements are prepared on the accrual basis of accounting. All adjustments made have been of a normal and recurring nature. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The Company believes that the disclosures included are adequate and provide a fair presentation of interim period results. Interim financial statements are not necessarily indicative of the financial position or operating results for an entire year. It is suggested that these interim financial statements be read in conjunction with the audited financial statements and the notes thereto, together with management's discussion and analysis of financial condition and results of operations, included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~2017 filed with the SEC on February ~~15, 2017.~~22, 2018.

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

Principles of Consolidation

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

The Company continually evaluates its potential variable interest entity ("VIE") relationships under certain criteria as provided for in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 810, Consolidation ("ASC 810"). ASC 810 broadly defines a VIE as an entity with one or more of the following characteristics: (a) the total equity investment at risk is insufficient to finance the entity's activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity's activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity's activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The Company performs this analysis on an ongoing basis and consolidates any VIEs for which the Company is determined to be the primary beneficiary, as determined by the Company's power to direct the VIE's activities and the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE. Refer to Note 1314 for more information about the Company's VIE relationships.

Revenue Recognition

Resident Fees

Resident fee revenue is ~~recorded when~~reported at the amount that reflects the consideration the Company expects to receive in exchange for the services provided. These amounts are ~~rendered~~due from residents or third-party payors and ~~consists~~include variable consideration for retroactive adjustments, if any, under reimbursement programs. Performance obligations are determined based on the nature of ~~fees for basic housing and certain support~~the services ~~and fees associated with additional services such~~provided. Resident fee revenue is recognized as ~~assisted~~performance obligations are satisfied.

Under the Company's senior living ~~care, skilled nursing care, ancillary services and personalized health services. Residency~~residency agreements, which are generally for a term of 30 days to one year, the Company provides senior living services to residents for a stated daily or monthly fee. The Company recognizes revenue for housing services under residency agreements for independent living and assisted living services in accordance with ~~resident fees billed monthly in advance. Revenue~~the provisions of ASC Topic 840, Leases ("ASC 840"). The Company recognizes revenue for ~~certain~~assisted living care, skilled nursing residency and inpatient therapy services, ancillary services, and personalized health services in accordance with the provisions of ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"). The Company has determined that the senior living services included under the daily or monthly fee have the same timing and pattern of transfer and are a series of distinct services that are considered one performance obligation which is satisfied over time.

Through its ancillary services programs, the Company enters into contracts to provide home health, hospice, and outpatient therapy services. The Company recognizes revenue for home health, hospice, andoutpatient therapy services in accordance with the provisions of ASC 606. Each service provided under the contract is capable of being distinct, and thus, the services are considered individual and separate performance obligations which are satisfied as services are provided and revenue is recognized as services are ~~provided,~~provided.

The Company receives revenue for services under various third-party payor programs which include Medicare, Medicaid, and ~~such fees~~other third-party payors. Settlements with third-party payors for retroactive adjustments due to audits, reviews or investigations are ~~billed monthly~~included in ~~arrears.~~the determination of the estimated transaction price for providing services. The Company estimates the transaction price based on the terms of the contract with the payor, correspondence with the payor and historical payment trends, and retroactive adjustments are recognized in future periods as final settlements are determined.

Management ~~Fees~~Services

The Company manages certain communities under contracts which provide periodic management fee payments to the Company. Management fees are generally determined by an agreed upon percentage of gross revenues (as ~~defined) and are recorded monthly.~~defined in the management agreement). Certain management contracts also provide for an annual incentive fee to be paid to the Company upon achievement of certain metrics identified in the contract. ~~Incentive fee revenue is recorded at the conclusion of the contract year at the amount due pursuant to the contractual arrangements.~~

~~Reimbursed Costs Incurred on Behalf of Managed Communities~~

The Company manages certain communities under contracts which provide periodic management fee payments to the Company plus reimbursements of certain operating expenses. Where the Company is the primary obligor with respect to any such operating expenses, the Company recognizes revenue ~~when~~for community management services in accordance with the ~~goods have been delivered or the service has been rendered~~provisions of ASC 606. Although there are various management and operational activities performed by the Company under the contracts, the Company has determined that all community operations management activities are a single performance obligation, which is satisfied over time as the services are rendered. The Company estimates the amount of incentive fee revenue expected to be earned, if any, during the annual contract period and revenue is recognized as services are provided to the owners of the communities.The Company’s estimate of the transaction price for management services also includes the amount of reimbursement due ~~reimbursement.~~from the owners of the communities for services provided and related costs incurred. Such revenue is included in "reimbursed costs incurred on behalf of managed communities" on the condensed consolidated statements of operations. The related costs are included in "costs incurred on behalf of managed communities" on the condensed consolidated statements of operations.

Gain on Sale of Assets

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

The Company accounts for the sale of equity method investments under ASC 860, Transfers and Servicing ("ASC 860"). Under ASC 860, income is recognized when the transfer of control occurs and the Company has no continuing involvement with the transferred financial assets.

Stock-Based Compensation

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

Certain of the Company’s employee stock awards vest only upon the achievement of performance targets. ASC 718 requires recognition of compensation cost only when achievement of performance conditions is considered probable. Consequently, the Company’s determination of the amount of stock compensation expense requires judgment in estimating the probability of achievement of these performance targets.

For all share-based awards with graded or cliff 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.

Income Taxes

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

~~Marketable Securities~~

~~Investments in commercial paper instruments with original maturities of greater than three months and remaining maturities of less than one year are classified as marketable securities.~~

Fair Value of Financial Instruments

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

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

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

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

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

~~The Company estimates the fair value~~Marketable Securities

Investments in commercial paper and corporate bond instruments with original maturities of its debt using a discounted cash flow analysis based upon the Company's current borrowing rate for debt with similar maturities and collateral securing the indebtedness. The Company had outstanding debt (excluding capital and financing lease obligations) with a carrying value of approximately $3.6 billiongreater than three months are classified as of both June 30, 2017 and December 31, 2016. Fair value of the debt approximates carrying value in all periods. The Company's fair value of debt disclosure is classified within Level 2 of the valuation hierarchy.marketable securities.

~~Stock-Based Compensation~~Goodwill and Intangible Assets

The Company follows ASC ~~718,~~350, ~~Compensation – Stock Compensation~~Goodwill and Other Intangible Assets ~~(“ASC 718”)~~, and tests goodwill for impairment annually during the fourth quarter or whenever indicators of impairment arise. Factors the Company considers important in ~~accounting~~its analysis of whether an indicator of impairment exists include a significant decline in the Company's stock price or market capitalization for ~~its share-based payments. This guidance requires measurement~~a sustained period since the last testing date, significant underperformance relative to historical or projected future operating results and significant negative industry or economic trends. The Company first assesses qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test. The quantitative goodwill impairment test is based upon a comparison of the ~~cost of employee services received in exchange for stock compensation based on the grant-date~~estimated fair value of the ~~employee stock awards. This cost~~reporting unit to which the goodwill has been assigned with the reporting unit's carrying value. The Company is ~~recognized as compensation expense ratably over~~not required to calculate the ~~employee’s requisite service period. Incremental compensation costs arising from subsequent modifications~~fair value of ~~awards after~~a reporting unit unless the ~~grant date are recognized when incurred.~~Company determines, based on a qualitative assessment, that it is more likely than not that its fair value of a reporting unit is less than its carrying value. The fair values used

~~Certain~~

in the quantitative goodwill impairment test are estimated based upon discounted future cash flow projections for the reporting unit. These cash flow projections are based upon a number of estimates and assumptions such as revenue and expense growth rates, capitalization rates and discount rates. The Company also considers market based measures such as earnings multiples in its analysis of estimated fair values of its reporting units. If the ~~Company’s employee stock awards vest only upon~~quantitative goodwill impairment test results in a reporting unit's carrying value exceeding its estimated fair value, an impairment charge will be recorded based on the ~~achievement of performance targets. ASC 718 requires recognition of compensation cost only when achievement of performance conditions is considered probable. Consequently,~~difference in accordance with ASU 2017-04, Intangibles - Goodwill and Other, with the ~~Company’s determination of~~impairment charge limited to the amount of ~~stock compensation expense requires a significant level of judgment in estimating~~goodwill allocated to the ~~probability of achievement of these performance targets.~~

~~On January 1, 2017, the Company adopted Accounting Standards Update ("ASU") 2016-09,~~ ~~Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting~~ ~~("ASU 2016-09")~~and changed its policy from estimating forfeitures to recording forfeitures when they occur. The Company’s adoption of ASU 2016-09 did not have a material impact on its condensed consolidated financial statements.reporting unit.

~~For all share-based awards with graded vesting other than awards with performance-based vesting conditions, the Company records compensation expense~~Acquired intangible assets are initially valued at fair market value using generally accepted valuation methods appropriate for the ~~entire award on~~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 value 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 value 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 value exceeds its fair value, an impairment loss is recognized for that difference.

Amortization of the Company's definite-lived intangible assets is computed using the straight-line ~~basis (or, if applicable, on the accelerated method)~~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 trancheestimated useful lives of the ~~award~~assets, which are 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.follows:



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

Self-Insurance Liability Accruals

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

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

During the six months ended June 30, ~~2017~~2018 and ~~June 30, 2016,~~2017, the Company reduced its estimate for the amount of expected losses for general liability and professional liability and workers compensation claims, based on recent historical claims experience. The reduction in these accrued reserves decreased facility operating expense by $6.3 million and $7.5 million for the three and six months ended June 30, 2018, respectively, and by $2.0 million and $5.6 million for the three and six months ended June 30, 2017, ~~respectively, and by $13.7 million for each of the three and six months ended June 30, 2016.~~respectively.

~~Community Leases~~Lease Accounting

The Company, as lessee, makes a determination with respect to each of its community leases as to whether each should be accounted for as an operating lease or capital lease. The classification criteria is based on estimates regarding the fair value of the leased community, minimum lease payments, effective cost of funds, the economic life of the community and certain other terms in the lease agreements. In a business combination, the Company assumes the lease classification previously determined by the prior lessee absent a modification, as determined by ASC 840, Leases ("ASC 840"), in the assumed lease agreement. Payments made under operating leases are accounted for in the Company's condensed consolidated statements of operations as lease expense for

actual rent paid plus or minus a straight-line adjustment for estimated minimum lease escalators and amortization of deferred gains in situations where sale-leaseback transactions have occurred.

For capital ~~lease~~ and financing lease ~~financing~~ obligation arrangements, a liability is established on the Company's condensed consolidated balance sheet representing the present value of the future minimum lease payments and a residual value for financing leases and

a corresponding long-term asset is recorded in property, plant and equipment and leasehold intangibles in the condensed consolidated balance sheet. For capital lease assets, the asset is depreciated over the remaining lease term unless there is a bargain purchase option in which case the asset is depreciated over the useful life. For financing lease assets, the asset is depreciated over the useful life of the asset. Leasehold improvements purchased during the term of the lease are amortized over the shorter of their economic life or the lease term.

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

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

Sale-leaseback accounting is applied to transactions in which an owned community is sold and leased back from the buyer if certain continuing involvement criteria are met. Under sale-leaseback accounting, the Company removes the community and related liabilities from the condensed consolidated balance sheet. Gain on the sale is deferred and recognized as a reduction of facility lease expense for operating leases and a reduction of interest expense for capital leases. In cases of sale-leaseback transactions in which the Company has continuing involvement, other than normal leasing activities, the Company does not record the sale until such involvement terminates.

For leases in which the Company is involved with the construction of a building, the Company accounts for the leases during the construction period under the provisions of ASC 840. If the Company concludes that it has substantively all of the risks of ownership during construction of a leased property and therefore is deemed the owner of the project for accounting purposes, it records an asset and related financing obligation for the amount of total project costs related to construction in progress. Once construction is complete, the Company considers the requirements under ASC ~~Subtopic~~subtopic 840-40. If the arrangement qualifies for sale-leaseback accounting, the Company removes the assets and related liabilities from the condensed consolidated balance sheet. If the arrangement does not qualify for sale-leaseback accounting, the Company continues to amortize the financing obligation and depreciate the assets over the lease term.

~~New~~Recently Adopted Accounting Pronouncements

In January 2017, the FASB issued ~~ASU 2017-04,~~ ~~Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment~~Accounting Standards Update ("~~ASU 2017-04"~~ASU"). ASU 2017-04 removes Step 2 from the goodwill impairment test. Under ASU 2017-04, if a reporting unit's carrying amount exceeds its fair value, an impairment charge will be recorded based on the difference, with the impairment charge limited to the amount of goodwill allocated to the reporting unit. The Company adopted ASU 2017-04 on a prospective basis on January 1, 2017. There was no impact on the Company's condensed consolidated financial statements as a result of the adoption of ASU 2017-04.

~~In January 2017, the FASB issued ASU~~ 2017-01, Business Combinations: Clarifying the Definition of a Business ("ASU 2017-01"). ASU 2017-01 clarifies the definition of a business to assist companies in determining whether transactions should be accounted for as an asset acquisition or a business combination. Under ASU 2017-01, if substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business and the transaction is accounted for as an asset acquisition. Transaction costs associated with asset acquisitions are capitalized while those associated with business combinations are expensed as incurred. The ~~amendments are effective for the Company's fiscal year beginning~~Company adopted ASU 2017-01 on a prospective basis on January 1, ~~2018 and early adoption is permitted, including within interim periods. Upon adoption, the~~2018. The Company anticipates that the changes to the definition of a business may result in future acquisitions of real estate, communities or senior housing operating companies being accounted for as asset acquisitions.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash, a consensus of the FASB Emerging Issues Task Force ("ASU 2016-18"). ASU 2016-18 intends to address the diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. The amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2017,~~2017. The Company adopted ASU 2016-18 on January 1, 2018 and ~~early adoption is permitted. Upon adoption,~~ the changes required by ASU 2016-18 ~~must be~~were applied retrospectively to all periods presented. The Company ~~is currently evaluating~~has identified that the ~~impact~~inclusion of the ~~adoption~~change in restricted cash within the retrospective presentation of ~~ASU 2016-18 will have on its condensed consolidated financial~~the statements of cash flows resulted in a $1.1 million and ~~disclosures.~~$1.7 million decrease to the amount of net cash used in investing activities for the three and six months ended June 30, 2017, respectively.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"). ASU 2016-15 clarifies how cash receipts and cash payments in certain transactions are presented in the statement of cash flows. Among other clarifications on the classification of certain transactions within the statement of cash flows, the amendments in ASU 2016-15 provide ~~additional guidance on the classification within the statement of cash flows for the following transactions:~~

that debt prepayment ~~or debt~~and extinguishment costs will be classified within financing ~~activities;~~

activities within the ~~portion~~statement of cash payments attributable to accreted interest at the settlement of debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate will be classified within operating activities;

~~proceeds from insurance settlements will be classified based on the nature of the related insurance coverage; and~~

~~companies must elect to classify distributions received from equity method investees using either a cumulative earnings approach or a nature of the distributions approach.~~

flows. ASU 2016-15 is effective for the Company for the fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2017,~~2017. The Company adopted ASU 2016-15 on January 1, 2018 and ~~early adoption is permitted. Upon adoption,~~ the changes in classification within the statement of cash flows ~~must be~~were applied retrospectively to all periods presented. The Company's

retrospective application resulted in a $0.7 million increase to the amount of net cash provided by operating activities and a $0.7 million decrease to the amount of net cash used in financing activities for each of the three and six months ended June 30, 2017.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"). ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. The five step model defined by ASU 2014-09 requires the Company to (i) identify the contracts with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when each performance obligation is ~~currently evaluating~~satisfied. Revenue is recognized when promised goods or services are transferred to the ~~impact~~customer in an amount that reflects the consideration expected in exchange for those goods or services. Additionally, ASU 2014-09 requires enhanced disclosure of revenue arrangements. ASU 2014-09 may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect recognized as of the date of initial application (modified retrospective). ASU 2014-09, as amended, is effective for the Company's fiscal year beginning January 1, 2018, and the Company adopted the new standard under the modified retrospective approach. Under the modified retrospective approach, the guidance is applied to the most current period presented, recognizing the cumulative effect of the adoption change as an adjustment to beginning retained earnings. The Company has determined that the adoption of ASU ~~2016-15~~2014-09 did not result in an adjustment to retained earnings as of January 1, 2018.

The Company has determined that there will ~~have~~be a change to the amounts of resident fee revenue and facility operating expense with no net impact to the amount of income from operations, for the impact of implicit price concessions on ~~its condensed consolidated financial statements~~the estimation of the transaction price. The Company recognized $896.0 million and ~~disclosures.~~$1,802.2 million of resident fee revenue and $627.1 million and $1,259.4 million of facility operating expense for the three and six months ended June 30, 2018, respectively. The impact to resident fee revenue and facility operating expense as a result of applying ASC 606 was a decrease of $2.1 million and $3.2 million for the three and six months ended June 30, 2018, respectively.

The Company has determined that there will not be any significant change to the annual amount of revenue recognized for management fees under the Company’s community management agreements; however, the Company will recognize an estimated amount of incentive fee revenue earlier during the annual contract period. The Company has determined that there will be a change to the amounts presented for revenue recognized for reimbursed costs incurred on behalf of managed communities and reimbursed costs incurred on behalf of managed communities with no net impact to the amount of income from operations, as a result of the combination of all community operations management activities as a single performance obligation for each contract. The Company recognized $242.2 million and $504.4 million of revenue for reimbursed costs incurred on behalf of managed communities and $242.2 million and $504.4 million of reimbursed costs incurred on behalf of managed communities for the three and six months ended June 30, 2018, respectively, in accordance with ASU 2014-09. The impact to revenue for reimbursed costs incurred on behalf of managed communities and reimbursed costs incurred on behalf of managed communities as a result of applying ASC 606 was an increase of $11.3 million and $23.7 million for the three and six months ended June 30, 2018, respectively.

Additionally, real estate sales are within the scope of ASU 2014-09, as amended by ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets ("ASU 2017-05"). ASU 2017-05 clarifies the scope of subtopic 610-20 and adds guidance for partial sales of nonfinancial assets. Under ASU 2014-09 and ASU 2017-05, the income recognition for real estate sales is largely based on the transfer of control versus continuing involvement under the former guidance. As a result, more transactions may qualify as sales of real estate and gains or losses may be recognized sooner. The Company adopted ASU 2014-09, as amended by ASU 2017-5, under the modified retrospective approach as of January 1, 2018 and will apply the five step revenue model to all subsequent sales of real estate.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 replaces the current incurred loss impairment methodology for credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its condensed consolidated financial statements and disclosures.

In March 2016, the FASB issued ASU 2016-09, which is intended to simplify the accounting for share-based payment transactions, including the accounting for income taxes and forfeitures, as well as the classification of awards and classification on the statement of cash flows. The Company adopted ASU 2016-09 on January 1, 2017 and changed its accounting policy from estimating forfeitures to recording forfeitures when they occur. The Company’s adoption of ASU 2016-09 did not have a material impact on its condensed consolidated financial statements. There was no current impact on the Company’s condensed consolidated statement of operations for the three and six months ended June 30, 2017 from the adoption of ASU 2016-09 as the Company is in a net operating loss position and any excess tax benefits require a full valuation allowance. See Note 12 for more information about the Company's deferred income taxes. The changes have been applied using a modified retrospective approach in accordance with ASU 2016-09 and prior periods have not been adjusted.

In February 2016, the FASB issued ASU 2016-02, Leases ("ASU 2016-02"). ASU 2016-02 amends the existing accounting principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability on the balance sheet for most leases. Additionally, ASU 2016-02 makes targeted changes to lessor ~~accounting.~~accounting and requires enhanced disclosure of lease arrangements. In July 2018, the FASB issued ASU 2018-11, Leases, Targeted Improvements ("ASU 2018-11"). ASU 2018-11 provides entities with a transition

method option to not restate comparative periods presented, but to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In addition, ASU 2018-11 provides entities with a practical expedient allowing lessors to not separate nonlease components from the associated lease components when certain criteria are met. ASU 2016-02 isand ASU 2018-11 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and early adoption is permitted. The Company plans to adopt these lease accounting standards effective January 1, 2019 utilizing a modified retrospective transition method with no adjustments to comparative periods presented. The Company anticipates that the adoption of ASU 2016-02 will result in the recognition of material lease liabilities and right-of use assets on the condensed consolidated balance sheet for these community operating leases. The Company is ~~currently evaluating~~monitoring recent accounting standard setting activities of the FASB and the Company continues to evaluate the impact that the adoption of ASU 2016-02 and ASU 2018-11 will have on its condensed consolidated financial statements and disclosures.

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers~~ ("ASU 2014-09"). ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. The five step model defined by ASU 2014-09 requires the Company to (i) identify the contracts with the customer, (ii) identify the performance obligations in the contact, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when each performance obligation is satisfied. Revenue will be recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services. ASU 2014-09 may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect recognized as of the date of initial application (modified retrospective). ASU 2014-09, as amended, is effective for the Company's fiscal year beginning January 1, 2018, and, at that time, the Company expects to adopt the new standard under the modified retrospective approach for contracts with customers. Under the modified retrospective approach, the guidance is applied to the most current period presented, recognizing the cumulative effect of the adoption change as an adjustment to beginning retained earnings. The Company continues to evaluate the impact the adoption of ASU 2014-09 will have on its condensed consolidated financial statements and disclosures. The evaluation includes identifying revenue streams by like contracts to allow for ease of implementation. In addition, the Company is monitoring specific developments for the senior living industry and evaluating potential changes to our business processes, systems, and controls to

~~support the recognition and disclosure under the new standard. Preliminary conclusions based upon procedures to-date include the following:~~

~~Resident Fees: The Company does not anticipate that the adoption of ASU 2014-09 will result in a significant change to the amount and timing of the recognition of resident fee revenue.~~

~~Management Fees and Reimbursed Costs Incurred on Behalf of Managed Communities~~: The Company manages certain communities under contracts which provide for payment to the Company of a periodic management fee plus reimbursement of certain operating expenses. The Company does not anticipate that there will be any significant change to the amount and timing of revenue recognized for these periodic management fees. Certain management contracts also provide for an annual incentive fee to be paid to the Company upon achievement of certain metrics identified in the contract. Upon adoption of ASU 2014-09, the Company anticipates that incentive fee revenue may be recognized earlier during the annual contract period. The Company is still evaluating the performance obligations and assessing the transfer of control for each operating service identified in the contracts, which may impact the amount of revenue recognized for reimbursed costs incurred on behalf of managed communities with no net impact to the amount of income from operations.

~~Equity in Earnings (Loss) of Unconsolidated Ventures~~: Certain of the Company's unconsolidated ventures accounted for under the equity method have residency agreements which require the resident to pay an upfront entrance fee prior to moving into the community and a portion of the upfront entrance fee is non-refundable. The Company's unconsolidated ventures are still evaluating the impact of the adoption of ASU 2014-09, which may impact the recognition of equity in earnings of unconsolidated ventures.

~~Additionally, real estate sales are within the scope of ASU 2014-09, as amended by ASU 2017-05,~~ ~~Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets~~ ~~("ASU 2017-05"). ASU 2017-05 clarifies the scope of subtopic 610-20,~~ ~~Other Income - Gains and Losses from Derecognition of Nonfinancial Assets~~ and adds guidance for partial sales of nonfinancial assets. Under ASU 2014-09 and ASU 2017-05 the income recognition for real estate sales is largely based on the transfer of control versus continuing involvement under the current guidance. As a result, more transactions may qualify as sales of real estate and gains or losses may be recognized sooner. Upon adoption, the Company will apply the five step revenue model to all future sales of real estate. The Company may elect to adopt ASU 2014-09 and ASU 2017-05 for contracts with noncustomers utilizing either a full retrospective approach or a modified retrospective approach. The Company has deferred gains related to completed sales of real estate which may be recognized as a cumulative adjustment to retained earnings upon adoption if the full retrospective approach is elected for contracts with noncustomers. The Company continues to evaluate the impact the adoption of ASU 2014-09 and ASU 2017-05 will have on its condensed consolidated financial statements and disclosures.

Reclassifications

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

3. Earnings Per Share

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

During the three and six months ended June 30, ~~2017~~2018 and ~~2016,~~2017, the Company reported a consolidated net loss. As a result of the net loss, unvested restricted stock, restricted stock units and convertible debt instruments and warrants were antidilutive for each period and were not included in the computation of diluted weighted average shares. The weighted average restricted stock and restricted stock units excluded from the calculations of diluted net loss per share were ~~5.5~~6.2 million and ~~4.5~~5.5 million for the three months ended June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and ~~5.4~~6.6 million and ~~4.2~~5.4 million for the six months ended June 30, ~~2017~~2018 and ~~2016,~~2017, respectively.

~~The~~For the three and six months ended June 30, 2018 and 2017, the calculation of diluted weighted average shares excludes the impact of conversion of the ~~outstanding~~ principal amount of $316.3 million of the Company's 2.75% convertible senior notes ~~due~~which were repaid in cash at their maturity on June 15, 2018. Refer to Note 9 for more information about the Company's former convertible notes. As of June 30, 2017, ~~and 2016,~~ the maximum number of shares issuable upon conversion of the notes iswas approximately 13.8 million (after giving effect to additional make-whole shares issuable upon conversion in connection with the occurrence of certain events)~~; however it is~~. As of June 30, 2017, the ~~Company's current~~

~~intent and policy to settle the principal amount of the notes in cash upon conversion. The~~ maximum number of shares issuable upon conversion of the notes in excess of the amount of principal that would be settled in cash iswas approximately 3.0 million. In addition, the calculation of diluted weighted average shares excludes the impact of the exercise of warrants to acquire the Company's common stock. As of June 30, ~~2017~~2018 and ~~2016,~~2017, the number of shares issuable upon exercise of the warrants was approximately 10.8 million.

4. Acquisitions, Dispositions and Other Significant Transactions

The Company completed ~~dispositions, through~~ sales of six communities and ~~lease terminations,~~termination of ~~130~~leases on 152 communities during the period from January 1, ~~2016~~2017 through June 30, ~~2017. The~~2018. For the 94 communities that the Company disposed through sales and lease terminations during the period from April 1, 2017 through June 30, 2018, the Company's condensed consolidated financial statements include resident fee revenue of ~~$6.3~~$50.0 million and ~~$116.2~~$94.5 million, facility operating expenses of ~~$7.5~~$31.8 million and ~~$88.5~~$68.7 million, and cash lease payments of ~~$0.6~~$17.4 million and ~~$26.4~~$24.8 million for the ~~130~~ communities for the three months ended June 30, 2018 and 2017, respectively. For the 158 communities that the Company disposed through sales and lease terminations during the period from January 1, 2017 through June 30, ~~2016,~~2018, the Company's condensed consolidated financial statements include resident fee revenue of $109.1 million and $259.7 million, facility operating expenses of $70.2 million and $183.9 million, and cash lease payments of $37.4 million and $72.1 million for the communities for the six months ended June 30, 2018 and 2017, respectively. The results of operations of the 158 communities were reported in the following segments within the condensed consolidated financial statements prior to their disposition dates: Assisted Living (125 communities), Retirement Centers (20 communities) and CCRCs-Rental (13 communities).

The closings of the various pending transactions and expected sales of assets described below are subject to the satisfaction of various conditions, including (where applicable) the receipt of regulatory approvals. However, there can be no assurance that the transactions will close, or, if they do, when the actual closings will occur.

HCP Master Lease Transaction and RIDEA Ventures Restructuring

On November 2, 2017, the Company announced that it had entered into a definitive agreement for a multi-part transaction with HCP, Inc. ("HCP"). As part of such transaction, the Company entered into an Amended and Restated Master Lease and Security Agreement ("HCP Master Lease") with HCP effective as of November 1, 2017. The components of the multi-part transaction include:

Master Lease Transactions. The Company and HCP amended and restated triple-net leases covering substantially all of the communities the Company leased from HCP as of November 1, 2017 into the HCP Master Lease. During the three months ended June 30, 2018, the Company acquired two communities formerly leased for an aggregate purchase price of $35.4 million and leases with respect to ten communities were terminated, and such communities were removed from the HCP Master Lease.

Pursuant to the HCP Master Lease, 23 additional communities will be removed from the HCP Master Lease on or before November 1, 2018. However, if HCP has not transitioned operations and/or management of such communities to a third party prior to such date, the Company will continue to operate the foregoing 23 communities on an interim basis and such communities will, from and after such time, be reported in the Management Services segment. In addition to the foregoing 35 communities, the Company continues to lease 43 communities pursuant to the terms of the HCP Master Lease, which have the same lease rates and expiration and renewal terms as the applicable prior instruments, except that effective January 1, 2018, the Company received a $2.5 million annual rent reduction for two communities. The HCP Master Lease also provides that the Company may engage in certain change in control and other transactions without the need to obtain HCP's consent, subject to the satisfaction of certain conditions.

RIDEA Ventures Restructuring. Pursuant to the multi-part transaction agreement, HCP acquired the Company's 10% ownership interest in one of the Company's RIDEA ventures with HCP in December 2017 for $32.1 million (for which the Company recognized a $7.2 million gain on sale) and the Company's 10% ownership interest in the remaining RIDEA venture with HCP in March 2018 for $62.3 million (for which the Company recognized a $41.7 million gain on sale). The Company provided management services to 59 communities on behalf of the two RIDEA ventures as of November 1, 2017. Pursuant to the multi-part transaction agreement, the Company acquired one community for an aggregate purchase price of $32.1 million in January 2018 and three communities for an aggregate purchase price of $207.4 million in April 2018 and retained management of 18 of such communities. The amended and restated management agreements for such 18 communities have a term set to expire in 2030, subject to certain early termination rights. In addition, HCP will be entitled to sell or transition operations and/or management of 37 of such communities. Management agreements for seven and 17 such communities were terminated by HCP during the three and six months ended June 30, 2018, respectively (for which the Company recognized a $2.8 million and $5.1 million non-cash management contract termination gain, respectively), and the Company expects the termination of management agreements on the remaining 20 communities to occur in stages throughout 2018.

The Company financed the foregoing community acquisitions with non-recourse mortgage financing and proceeds from the sales of its ownership interest in the unconsolidated ventures. See Note 9 to the condensed consolidated financial statements for more information regarding the non-recourse mortgage financing.

In addition, the Company obtained future annual cash rent reductions and waived management termination fees in the multi-part transaction. As a result, the Company reduced its lease liabilities by $9.7 million for the future annual cash rent reductions and recognized a $9.7 million deferred liability for the consideration received from HCP in advance of the termination of the management agreements for the 37 communities.

As a result of the modification of the remaining lease term for communities subject to capital leases, the Company reduced the carrying value of capital lease obligations and assets under capital leases by $145.6 million in 2017. During the three months ended June 30, 2018, the results and financial position of the ten communities for which leases were terminated were deconsolidated from the Company prospectively upon termination of the lease obligations. The Company derecognized the $86.9 million carrying value of the assets under financing leases and the $93.5 million carrying value of financing lease obligations for three communities which were previously subject to sale-leaseback transactions in which the Company was deemed to have continuing involvement. The Company recognized a sale for these three communities and recorded a $6.5 million non-cash gain on sale of assets for the three months ended June 30, 2018. Additionally, the Company recognized a $1.9 million non-cash gain on lease termination for

the derecognition of the net carrying value of the Company's assets and liabilities under operating and capital leases at the lease termination date. The terminations of leases for the 23 remaining communities expected in 2018 are anticipated to result in the Company recording a non-cash gain in fiscal 2018 for the amount by which the carrying value of the operating and capital and financing lease obligations for the 23 communities exceed the carrying value of the Company's assets under operating and capital and financing leases at the lease termination date. As of June 30, 2018, the $287.3 million carrying value of the lease obligations for the 23 communities exceed the $248.2 million carrying value of the assets under operating and capital and financing leases by approximately $39.1 million, primarily for 17 communities which were previously subject to sale-leaseback transactions in which the Company was deemed to have continuing involvement for accounting purposes.

The results of operations for the 23 communities that will be disposed through lease terminations are reported within the following segments within the condensed consolidated financial statements: Retirement Centers (three communities), Assisted Living (19 communities), and CCRCs-Rental (one community). With respect to such 23 communities, the Company's condensed consolidated financial statements include resident fee revenue of $21.5 million and $21.8 million, facility operating expenses of $15.3 million and $14.5 million, and cash lease payments of $7.1 million and $7.5 million for the three months ended June 30, 2018 and 2017, respectively. The Company's condensed consolidated financial statements include resident fee revenue of ~~$82.3~~$43.5 million and ~~$236.1~~$44.7 million, facility operating expenses of ~~$62.9~~$30.7 million and ~~$177.0~~$28.9 million, and cash lease payments of ~~$23.7~~$14.1 million and ~~$52.4~~$15.0 million ~~for the 130 communities~~ for the six months ended June 30, 2018 and 2017, ~~and~~respectively.

For the 20 managed communities for which the Company's management may be terminated, the Company's condensed consolidated financial statements include management fees of $1.4 million for each of the three months ended June 30, ~~2016,~~2018 and 2017. The Company's condensed consolidated financial statements include management fees of $2.7 million for each of the six months ended June 30, 2018 and 2017.

Ventas Lease Portfolio Restructuring

On April 26, 2018, the Company entered into several agreements to restructure a portfolio of 128 communities it leased from Ventas, Inc. and certain of its subsidiaries (collectively, "Ventas") as of such date, including a Master Lease and Security Agreement (the "Ventas Master Lease"). The Ventas Master Lease amended and restated prior leases comprising an aggregate portfolio of 107 communities into the Ventas Master Lease. Under the Ventas Master Lease and other agreements entered into on April 26, 2018, the 21 additional communities leased by the Company from Ventas pursuant to separate lease agreements have been or will be combined automatically into the Ventas Master Lease upon the first to occur of Ventas' election or the repayment of, or receipt of lender consent with respect to, mortgage debt underlying such communities. The Company and Ventas agreed to observe, perform and enforce such separate leases as if they had been combined into the Ventas Master Lease effective April 26, 2018, to the extent not in conflict with any mortgage debt underlying such communities. The transaction agreements with Ventas further provide that the Ventas Master Lease and certain other agreements between the Company and Ventas will be cross-defaulted.

The initial term of the Ventas Master Lease ends December 31, 2025, with two 10-year extension options available to the Company. In the event of the consummation of a change of control transaction of the Company on or before December 31, 2025, the initial term of the Ventas Master Lease will be extended automatically through December 31, 2029. The Ventas Master Lease and separate lease agreements with Ventas, which are guaranteed at the parent level by the Company, provide for total rent in 2018 of $175.0 million for the 128 communities, including the pro-rata portion of an $8.0 million annual rent credit for 2018. The Company will receive an annual rent credit of $8.0 million in 2019, $7.0 million in 2020 and $5.0 million in 2021 and thereafter; provided, that if a change of control of the Company occurs prior to 2021, the annual rent credit will be reduced to $5.0 million. Effective on January 1, 2019, the annual minimum rent will be subject to an escalator equal to the lesser of 2.25% or four times the Consumer Price Index ("CPI") increase for the prior year (or zero if there was a CPI decrease).

The Ventas Master Lease requires the Company to spend (or escrow with Ventas) a minimum of $2,000 per unit per 24-month period commencing with the 24-month period ending December 31, 2019 and thereafter each 24-month period ending December 31 during the lease term, subject to annual increases commensurate with the escalator beginning with the second lease year of the first extension term (if any). If a change of control of the Company occurs, the Company will be required, within 36 months following the closing of such transaction, to invest (or escrow with Ventas) an aggregate of $30.0 million in the communities for revenue-enhancing capital projects.

Under the definitive agreements with Ventas, the Company, at the parent level, must satisfy certain financial covenants (including tangible net worth and leverage ratios) and may consummate a change of control transaction without the need for consent of Ventas so long as certain objective conditions are satisfied, including the post-transaction guarantor's satisfying certain enhanced minimum tangible net worth and maximum leverage ratio, having minimum levels of operational experience and reputation in the senior living industry, and paying a change of control fee of $25.0 million to Ventas.

At the Company's option, which must be exercised on or before April 26, 2019, the Company may provide notice to Ventas of the Company's election to direct Ventas to market for sale one or more communities with up to approximately $30.0 million of annual minimum rent. Upon receipt of such notice, Ventas will be obligated to use commercially reasonable, diligent efforts to sell such communities on or before December 31, 2020 (subject to extension for regulatory purposes); provided, that Ventas' obligation to sell any such community will be subject to Ventas' receiving a purchase price in excess of a minimum sale price to be mutually agreed by the Company and Ventas and to certain other customary closing conditions. Upon any such sale, such communities will be removed from the Ventas Master Lease, and the annual minimum rent under the Ventas Master Lease will be reduced by the amount of the net sale proceeds received by Ventas multiplied by 6.25%.

The Company estimated the fair value of each of the elements of the restructuring transactions. The fair value of the future lease payments is based upon historical and forecasted community cash flows and market data, including a management fee rate of 5% of revenue and a market supported lease coverage ratio. These assumptions are supported by independent market data and considered to be Level 3 measurements within the fair value hierarchy. The Company recognized a $125.7 million non-cash loss on lease modification in the three and six months ended June 30, 2018, primarily for the extensions of the triple-net lease obligations for communities with lease terms that are unfavorable to the Company given current market conditions on the amendment date in exchange for modifications to the change of control provisions and financial covenant provisions of the community leases.

Welltower Lease and RIDEA Venture Restructuring

On June 27, 2018 the Company announced that it had entered into definitive agreements with Welltower Inc. ("Welltower"). The components of the agreements include:

Lease Terminations. The Company and Welltower agreed to early termination of the Company's triple-net lease obligations on 37 communities effective June 30, 2018. The two lease portfolios were due to mature in 2028 (27 communities) and 2020 (10 communities). The Company paid Welltower an aggregate lease termination fee of $58.0 million. The Company will continue to manage the foregoing 37 communities on an interim basis until the communities are transitioned to new managers and such communities will be reported in the Management Services segment during such interim period. The Company recognized a $22.6 million loss on lease termination in the three and six months ended June 30, 2018 for the amount by which the aggregate lease termination fee exceeded the net carrying value of the Company's assets and liabilities under operating and capital leases at the lease termination date.

Future Lease Terminations. The parties separately agreed to allow the Company to terminate leases with respect to, and to remove from the remaining Welltower leased portfolio, a number of communities with annual aggregate base rent up to $5.0 million upon Welltower's sale of such communities, with the Company to receive a corresponding 6.25% rent credit on Welltower's disposition proceeds.

RIDEA Restructuring. The Company agreed to sell its 20% equity interest in its existing Welltower RIDEA venture to Welltower, effective June 30, 2018, for net proceeds of $33.5 million(for which the Company recognized a $14.7 million gain on sale during the three and six months endedJune 30, 2018). As of June 30, 2018, the Company provided management services to the 15 venture communities and will continue to manage the communities until the communities are transitioned by Welltower to new managers.

The Company also elected not to renew two master leases with Welltower scheduled to mature on September 30, 2018 (11 communities). After conclusion of the foregoing lease expirations, the Company will continue to operate 74 communities under triple-net leases with Welltower, and the Company's remaining lease agreements with Welltower will contain a change of control standard, which would allow the Company to engage in certain change of control and other transactions without the need to obtain Welltower's consent, subject to the satisfaction of certain conditions.

The results of operations for the 37 communities that have been disposed through lease terminations are reported within the following segments within the condensed consolidated financial statements: Retirement Centers (8 communities) and Assisted Living (29 communities). With respect to such 37 communities, the Company's condensed consolidated financial statements include resident fee revenue of $43.5 million and $42.6 million, facility operating expenses of $26.8 million and $26.2 million, and cash lease payments of $15.2 million and $14.8 million for the three months ended June 30, 2018 and 2017, respectively. The Company's consolidated financial statements include resident fee revenue of $86.7 million and $85.8 million, facility operating expenses of $54.1 million and $51.8 million, and cash lease payments of $30.4 million and $29.6 million for the six months endedJune 30, 2018 and 2017, respectively. For the 15 former venture communities for which the Company's management may be terminated, the Company's condensed consolidated financial statements include management fees of $1.1 million for each of the three months ended June 30, 2018 and 2017. The Company's condensed consolidated financial statements include management fees of $2.2 million for each of the six months endedJune 30, 2018 and 2017.

Formation of Venture with Blackstone

On March 29, 2017, the Company and affiliates of Blackstone Real Estate Advisors VIII L.P. (collectively, "Blackstone") formed a venture (the ~~“Blackstone Venture”~~"Blackstone Venture") that acquired 64 senior housing communities for a purchase price of $1.1 billion. The Company had previously leased the 64 communities from HCP ~~Inc. ("HCP")~~ under long-term lease agreements with a remaining average lease term of approximately 12 years. At the closing, the Blackstone Venture purchased the 64-community portfolio from HCP subject to the existing leases, and the Company contributed its leasehold interests for 62 communities and a total of $179.2 million in cash to purchase a 15% equity interest in the Blackstone Venture, terminate leases, and fund its share of closing costs. As of the formation date, the Company continued to operate two of the communities under lease agreements and began managing 60 of the communities on behalf of the venture under a management agreement with the venture. The two remaining leases will be terminated, pending certain ~~regulatory and other~~ conditions, at which point the Company will manage the communities; however, there can be no assurance that the terminations will occur or, if they do, when the actual terminations will occur. Two of the communities are managed by a third party for the venture.

The results and financial position of the 62 communities for which leases were terminated were deconsolidated from the Company prospectively upon formation of the Blackstone Venture. The results of operations of the 62 communities for which leases were terminated were reported in the following segments within the condensed consolidated financial statements through the formation date: Assisted Living (47 communities), Retirement Centers (eight communities) and CCRCs-Rental (seven communities). The Company's interest in the venture is accounted for under the equity method of accounting. Under the terms of the venture agreement, the Company may be entitled to distributions which are less than or in excess of the Company's 15% equity interest based upon specified performance criteria.

Initially, the Company determined that the contributed carrying value of the Company's investment was $66.8 million, representing the amount by which the $179.2 million cash contribution exceeded the carrying value of the Company's liabilities under operating, capital and financing leases contributed by the Company net of the carrying value of the assets under such operating, capital and financing leases. However, the Company estimated the fair value of its 15% equity interest in the Blackstone Venture at inception to be $47.1 million. As a result, the Company recorded a $19.7 million charge within asset impairment expense for the three months ended March 31, 2017 for the amount of the contributed carrying value in excess of the estimated fair value of the Company's investment. During the three months ended March 31, 2018, the Company recorded a $33.4 million non-cash impairment charge within asset impairment expense to reflect the amount by which the carrying value of the investment exceeded the estimated fair value.

Additionally, these transactions related to the Blackstone Venture required the Company to record a significant increase to the Company's existing tax valuation allowance, after considering the change in the Company's future reversal of estimated timing differences resulting from these transactions, primarily due to removing the deferred positions related to the contributed leases. During the three months ended March, 31, 2017, the Company recorded a provision for income taxes to establish an additional $85.0 million of valuation allowance against its federal and state net operating loss carryforwards and tax credits as the Company anticipates these carryforwards and credits will not be utilized prior to expiration. See Note 1213 for more information about the Company's deferred income taxes.

~~Community~~ Dispositions of Owned Communities During 2018 and Assets Held for Sale

The Company began ~~2017~~2018 with 1615 of its owned communities classified as held for sale as of December 31, ~~2016 and entered into an agreement to sell one community and to terminate the lease for one adjacent community during the three months ended March~~

~~31,~~ 2017. During the six months ended June 30, ~~2017,~~2018, the Company completed the sale of three communities, two of which were not previously included in assets held for sale, for net cash proceeds of $12.8 million and ~~terminated the leases~~recognized a net gain on sale of assets of $1.9 million. The Company entered into an agreement to sell one additional community, which is classified as held for ~~eight communities. The results~~sale as of operations of these communities are reported in the Assisted Living (eight communities) and CCRCs - Rental (three communities) segments within the condensed consolidated financial statements through the respective disposition dates. ForJune 30, 2018. During the three and six months ended June 30, ~~2017,~~2018, the Company recognized ~~a $6.4~~$9.2 million ~~net loss on facility lease termination~~and $12.0 million, respectively, of impairment charges related to communities identified as held for sale, primarily ~~from~~due to changes in the ~~write-off of assets subject to terminated community lease agreements.~~ estimated fair value.

As of June 30, ~~2017, 14~~2018, 15 communities were classified as held for ~~sale.~~

~~As of June 30, 2017, $91.0~~sale, resulting in $141.1 million ~~was~~being recorded as assets held for sale and ~~$60.5~~$50.2 million of mortgage debt ~~was~~being included in the current portion of long-term debt within the condensed consolidated balance sheet with respect to ~~the 14 communities held for sale as of~~ such ~~date.~~communities. This debt will either be repaid with the proceeds from the sales or be assumed by the prospective purchasers. The results of operations of the 1415 communities are reported in the following segments within the condensed consolidated financial statements: Retirement Centers (one community), Assisted Living (12 communities) and CCRCs-Rental (two communities). The 1415 communities had resident fee revenue of ~~$9.4~~$14.3 million and ~~$9.7~~$15.0 million and facility operating expenses of ~~$7.9~~$11.0 million and ~~$8.1~~$10.9 million for the three months ended June 30, ~~2017~~2018 and ~~June 30, 2016,~~2017, respectively. The 1415 communities had resident fee revenue of ~~$18.9~~$29.0 million and ~~$19.7~~$30.3 million and facility operating expenses of ~~$15.6~~$22.0 million and ~~$16.3~~$21.7 million for the six months ended June 30, ~~2017~~2018 and ~~June 30, 2016,~~2017, respectively.

The closings of the sales of the unsold communities classified as held for sale are subject to receipt of regulatory approvals and satisfaction of other customary closing conditions and are expected to occur during fiscal 2017; however, there can be no assurance that the transactions will close or, if they do, when the actual closings will occur.

Dispositions of Owned Communities and ~~Restructurings of Leased Communities~~Other Lease Terminations During 2017

~~On November 1, 2016,~~During the year ended December 31, 2017, the Company ~~announced that it had entered into agreements to, among other things, terminate triple-net leases with respect to 97~~completed the sale of three communities ~~four~~for net cash proceeds of ~~which were contributed to an existing unconsolidated venture in which~~$8.2 million, and the Company ~~holds an equity interest~~terminated leases for 43 communities otherwise than in connection with the transactions with HCP and 64Blackstone described above (including terminations of ~~which were acquired by the Blackstone Venture. In addition~~leases for 26 communities pursuant to the ~~formation~~transactions with HCP announced in November 2016).

5. Fair Value Measurements

Marketable Securities

As of June 30, 2018, marketable securities of $20.0 million are stated at fair value based on valuations provided by third-party pricing services and are classified within Level 2 of the ~~Blackstone Venture described above,~~valuation hierarchy. The Company recognized gains of $0.3 million and $1.5 million for marketable securities within interest income on the ~~transactions include~~Company's condensed consolidated statements of operations for the ~~following components:~~three and six months ended June 30, 2018, respectively.

Debt

The Company estimates the fair value of its debt using a discounted cash flow analysis based upon the Company's current borrowing rate for debt with similar maturities and ~~HCP agreed~~collateral securing the indebtedness. The Company had outstanding debt (excluding capital and financing lease obligations) with a carrying value of approximately $3.7 billion and $3.9 billion as of June 30, 2018 and December 31, 2017, respectively. Fair value of the debt approximates carrying value in all periods. The Company's fair value of debt disclosure is classified within Level 2 of the valuation hierarchy.

Goodwill and Asset Impairment Expense

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



	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2018		2017		2018		2017
Goodwill	$	—	$	—	$	351.7	$	—
Property, plant and equipment and leasehold intangibles, net	6.9		1.4		47.7		2.4
Investment in unconsolidated ventures	—		—		33.4		19.7
Other intangible assets, net	—		—		1.7		—
Assets held for sale	9.2		0.2		12.0		0.2
Goodwill and asset impairment	$	16.1	$	1.6	$	446.5	$	22.3

Goodwill

During the three months ended March 31, 2018, the Company identified qualitative indicators of impairment, including a significant decline in the Company's stock price and market capitalization for a sustained period during the three months ended March 31, 2018. Based upon the Company's qualitative assessment, the Company performed a quantitative goodwill impairment test as of March 31, 2018, which included a comparison of the estimated fair value of each reporting unit to ~~terminate triple-net leases~~which the goodwill has been assigned with ~~respect~~the reporting unit's carrying value.

In estimating the fair value of the reporting units for purposes of the quantitative goodwill impairment test, the Company utilized an income approach, which included future cash flow projections that are developed internally. Any estimates of future cash flow projections necessarily involve predicting unknown future circumstances and events and require significant management judgments and estimates. In arriving at the cash flow projections, the Company considered its historic operating results, approved budgets and business plans, future demographic factors, expected growth rates, and other factors. In using the income approach to 25estimate the fair value of reporting units for purposes of its goodwill impairment test, the Company made certain key assumptions. Those assumptions include future revenues, facility operating expenses, and cash flows, including sales proceeds that the Company would receive upon a sale of the communities using estimated capitalization rates, all of which are considered Level 3 inputs in accordance with ASC 820. The Company corroborated the estimated capitalization rates used in these calculations with capitalization rates observable from recent market transactions. 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. The Company also considered market based measures such as earnings multiples in its analysis of estimated fair values of its reporting units.

Based on the results of the Company's quantitative goodwill impairment test, the Company determined that the carrying value of the Company's Assisted Living reporting unit exceeded its estimated fair value by more than the $351.7 million carrying value of goodwill as of March 31, 2018. As a result, the Company recorded a non-cash impairment charge of $351.7 million to goodwill within the Assisted Living operating segment for the three months ended March 31, 2018. Based on the results of the Company's quantitative goodwill impairment test, the Company determined that the estimated fair value of both the Company's Retirement Centers and Brookdale Ancillary Services reporting units exceeded their respective carrying values as of March 31, 2018.

Determining the fair value of the Company's reporting units involves the use of significant estimates and assumptions, which the Company ~~expects~~believes to ~~occur~~be reasonable, that are unpredictable and inherently uncertain. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows and risk-adjusted discount rates. Future events may indicate differences from management's current judgments and estimates which could, in ~~stages through~~turn, result in future impairments. Future events that may result in impairment charges include increases in interest rates, which could impact capitalization and discount rates, differences in the ~~end~~projected occupancy rates and changes in the cost structure of ~~fiscal 2017.~~existing communities. Significant adverse changes in the Company’s future revenues and/or operating margins, significant changes in the market for senior housing or the valuation of the real estate of senior living communities, as well as other events and circumstances, including but not limited to increased competition and changing economic or market conditions, including market control premiums, could result in changes in fair value and the determination that additional goodwill is impaired.

Property, Plant and Equipment and Leasehold Intangibles

During the three and six months ended June 30, 2018 and 2017, the Company evaluated property, plant and equipment and leasehold intangibles for impairment and identified properties with a carrying value of the assets in excess of the estimated future undiscounted net cash flows expected to be generated by the assets primarily due to an expectation that certain communities will be disposed of prior to their previously intended holding periods. As a result of this change in intent, the Company compared the estimated fair value of the assets to their carrying value for these identified properties and recorded an impairment charge for the excess of carrying value over estimated fair value. The estimates of fair values of the property, plant and equipment of these communities were determined based on valuations provided by third-party pricing services and are classified within Level 3 of the valuation hierarchy. The Company recorded property, plant and equipment and leasehold intangibles non-cash impairment charges in its operating results of operations of the 25 communities are reported in the following segments within the consolidated financial statements: Assisted Living (23 communities) and CCRCs-Rental (two communities). The 25 communities had resident fee revenue of $18.6$6.9 million and ~~$18.5 million, facility operating expenses of $15.0 million and $14.6 million, and cash lease payments of $2.8 million and $4.9~~$1.4 million for the three months ended June 30, ~~2017~~2018 and ~~June 30, 2016,~~2017, respectively. The ~~25 communities had resident fee revenue~~Company recorded property, plant and equipment and leasehold intangibles non-cash impairment charges in its operating results of ~~$36.9~~$47.7 million and ~~$36.5 million, facility operating expenses of $29.9 million and $29.4 million, and cash lease payments of $5.5 million and $9.8~~$2.4 million for the six months ended June 30, 2018 and 2017, ~~and June 30, 2016, respectively.~~respectively, primarily within the Assisted Living segment.

Investment in Unconsolidated Ventures

The Company evaluates realization of its investment in ventures accounted for using the equity method if circumstances indicate that the Company's investment is other than temporarily impaired. During the six months ended June 30, 2018 and ~~HCP agreed~~2017, the Company recorded non-cash impairment charges related to ~~terminate triple-net leases with respect to eight communities. HCP agreed to contribute immediately thereafter four of such communities, to an existing~~investments in unconsolidated ~~venture with HCP in~~ventures $33.4 million and $19.7 million, respectively. These impairment charges reflect the amount by which the ~~Company has a 10% equity interest. During the three months ended December 31, 2016, the triple-net leases with respect to seven communities were terminated and HCP contributed four~~carrying values of the ~~communities~~investments exceeded their estimated fair value. Refer to Note 4 for more information about the ~~existing unconsolidated venture. The triple-net lease with respect to the remaining community was terminated during January 2017. The results of operations~~formation and impairment of the eight communities are reported in the following segments within the condensed consolidated financial statements through the respective disposition dates: Assisted Living (six communities), Retirement Centers (one community) and CCRCs-Rental (one community).Blackstone Venture during 2017.

5.6. Stock-Based Compensation

~~Current year grants~~Grants of restricted ~~stock~~shares under the Company's 2014 Omnibus Incentive Plan were as ~~follows (amounts in thousands except for value per share):~~

follows:

Shares Granted Value Per Share Total Value
Three months ended March 31, 2017 2,392
$ 14.84
$ 35,497
Three months ended June 30, 2017 71
$ 13.11
$ 937



(share amounts in thousands, except for per share amounts)	Shares Granted	Weighted Average Grant Date Fair Value		Total Value
Three months ended March 31, 2018	3,387	$	9.10	$	30,823
Three months ended June 30, 2018	169	$	7.19	$	1,214

6.7. Goodwill and Other Intangible Assets, Net

The following is a summary of the carrying ~~amount~~value of goodwill ~~as of June 30, 2017 and December 31, 2016 presented on an~~by operating ~~segment basis (in thousands):~~

segment.

June 30, 2017 December 31, 2016

Gross
Carrying
Amount

Dispositions and Other
Reductions
Net
Gross
Carrying
Amount

Dispositions and Other
Reductions
Net
Retirement Centers $ 28,141
$ (820 ) $ 27,321
$ 28,141
$ (820 ) $ 27,321
Assisted Living 605,469
(48,817 ) 556,652
600,162
(48,817 ) 551,345
Brookdale Ancillary Services 126,810
—
126,810
126,810
—
126,810
Total $ 760,420
$ (49,637 ) $ 710,783
$ 755,113
$ (49,637 ) $ 705,476



(in thousands)	Retirement Centers		Assisted Living			Brookdale Ancillary Services		Total
Balance at January 1, 2018	$	27,321	$	351,652		$	126,810	$	505,783
Impairment	—		(351,652		)	—		(351,652		)
Balance at June 30, 2018	$	27,321	$	—		$	126,810	$	154,131

Goodwill is tested for impairment annually with a test date of October 1 or sooner if indicators of impairment are present. The Company determined no impairment was necessary for the ~~six~~three months ended June 30, ~~2017.~~2018. Factors the Company considers important in its analysis, which could trigger an impairment of such assets, include significant underperformance relative to historical or projected future operating results, significant negative industry or economic trends, a significant decline in the Company's stock price for a sustained period and a decline in its market capitalization below net book value. A change in anticipated operating results or the other metrics indicated above could necessitate further analysis of potential impairment at an interval prior to the Company's annual measurement date. Refer to Note 5 for information on impairment expense for goodwill.

The following is a summary of other intangible ~~assets at June 30, 2017 and December 31, 2016 (in thousands):~~

assets.


	June 30, 2017							December 31, 2016							June 30, 2018
	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
(in thousands)															Gross Carrying Amount		Accumulated Amortization			Net
Community purchase options	$	4,738	$	—		$	4,738	$	4,738	$	—		$	4,738	$	4,738	$	—		$	4,738
Health care licenses	65,526		—			65,526		65,126		—			65,126		49,250		—			49,250
Trade names	27,800		(22,425		)	5,375		27,800		(21,135		)	6,665		27,800		(25,006		)	2,794
Management contracts	13,531		(9,661		)	3,870		13,531		(7,053		)	6,478		10,680		(7,645		)	3,035
Total	$	111,595	$	(32,086	)	$	79,509	$	111,195	$	(28,188	)	$	83,007	$	92,468	$	(32,651	)	$	59,817



	December 31, 2017
(in thousands)	Gross Carrying Amount		Accumulated Amortization			Net
Community purchase options	$	9,533	$	—		$	9,533
Health care licenses	50,927		—			50,927
Trade names	27,800		(23,714		)	4,086
Management contracts	11,360		(7,929		)	3,431
Total	$	99,620	$	(31,643	)	$	67,977

Amortization expense related to definite-lived intangible assets for the three months ended June 30, 2018 and 2017 ~~and 2016~~ was ~~$3.0~~$0.8 million and ~~$3.9~~$3.0 million, respectively, and for the six months ended June 30, 2018 and 2017 was $1.7 million and ~~2016 was~~ $3.9 million, ~~and $6.8 million,~~ respectively.

Health care licenses were determined to be indefinite-lived intangible assets and are not subject to amortization. The community purchase options are not currently amortized, but will be added to the cost basis of the related communities if the option is exercised, and will then be depreciated over the estimated useful life of the community.

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

As of June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, net property, plant and equipment and leasehold intangibles, which include assets under capital and financing leases, consisted of the ~~following (in thousands):~~

following:


	June 30, 2017			December 31, 2016
(in thousands)							June 30, 2018			December 31, 2017
Land	$	451,875		$	455,307		$	473,580		$	449,295
Buildings and improvements	5,058,293			5,053,204			5,057,848			4,923,621
Leasehold improvements	119,874			126,325			121,542			124,850
Furniture and equipment	982,846			974,516			1,040,220			1,006,889
Resident and leasehold operating intangibles	611,908			705,000			550,876			594,748
Construction in progress	52,399			69,803			50,245			74,678
Assets under capital and financing leases	2,040,965			2,879,996			1,530,890			1,742,384
	9,318,160			10,264,151			8,825,201			8,916,465
Accumulated depreciation and amortization	(2,894,319		)	(2,884,846		)	(3,109,270		)	(3,064,320		)
Property, plant and equipment and leasehold intangibles, net	$	6,423,841		$	7,379,305		$	5,715,931		$	5,852,145

Long-lived assets with definite useful lives are depreciated or amortized on a straight-line basis over their estimated useful lives (or, in certain cases, the shorter of their estimated useful lives or the lease term) and are tested for impairment whenever indicators of impairment arise. ~~The Company recorded $1.6 million and $2.6 million of non-cash charges within asset~~Refer to Note 5 for information on impairment expense for property, plant and equipment and leasehold intangibles.

For the three months ended June 30, 2018 and 2017, the Company recognized depreciation and amortization expense on its property, plant and equipment and leasehold intangibles of $115.3 million and $117.9 million, respectively, and for the six months ended June 30, 2018 and 2017, ~~respectively, for~~the Company recognized depreciation and amortization expense on its property, ~~damage at certain communities~~plant and ~~the cancellation~~equipment and leasehold intangibles of ~~certain community expansion~~$228.7 million and ~~redevelopment projects.~~$244.5 million, respectively.

8.9. Debt

Long-term Debt and Capital and Financing Lease Obligations

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

following:

June 30, 2017 December 31, 2016
Mortgage notes payable due 2017 through 2047; weighted average interest rate of 4.63% for the six months ended June 30, 2017, less debt discount and deferred financing costs of $7.8 million and $4.5 million at June 30, 2017 and December 31, 2016, respectively (weighted average interest rate of 4.50% in 2016) $ 3,206,593
$ 3,184,229
Capital and financing lease obligations payable through 2032; weighted average interest rate of 7.96% for the six months ended June 30, 2017 (weighted average interest rate of 8.08% in 2016) 1,591,264
2,485,520
Convertible notes payable in aggregate principal amount of $316.3 million, less debt discount and deferred financing costs of $13.7 million and $20.9 million at June 30, 2017 and December 31, 2016, respectively, interest at 2.75% per annum, due June 15, 2018 302,501
295,397
Construction financing (weighted average interest rate of 8.00% in 2016) —
3,644
Notes payable issued to finance insurance premiums, weighted average interest rate of 2.94% for the six months ended June 30, 2017, due 2017 10,828
—
Other notes payable, weighted average interest rate of 5.80% for the six months ended June 30, 2017 (weighted average interest rate of 5.33% in 2016) and maturity dates ranging from 2018 to 2021 77,886
76,377
Total long-term debt and capital and financing lease obligations 5,189,072
6,045,167
Less current portion 615,404
215,255
Total long-term debt and capital and financing lease obligations, less current portion $ 4,573,668
$ 5,829,912



(in thousands)	June 30, 2018		December 31, 2017
Mortgage notes payable due 2018 through 2047; weighted average interest rate of 4.8% for the six months ended June 30, 2018, less debt discount and deferred financing costs of $20.5 million and $16.6 million as of June 30, 2018 and December 31, 2017, respectively (weighted average interest rate of 4.59% in 2017)	$	3,647,622	$	3,497,762
Capital and financing lease obligations payable through 2032; weighted average interest rate of 7.93% for the six months ended June 30, 2018 (weighted average interest rate of 6.75% in 2017)	1,094,178		1,271,554
Convertible notes payable in aggregate principal amount of $316.3 million, less debt discount and deferred financing costs of $6.4 million as of December 31, 2017, interest at 2.75% per annum	—		309,853
Notes payable issued to finance insurance premiums, weighted average interest rate of 3.44% for the six months ended June 30, 2018	12,946		—
Other notes payable, weighted average interest rate of 5.91% for the six months ended June 30, 2018 (weighted average interest rate of 5.98% in 2017) and maturity dates ranging from 2020 to 2021	61,558		63,122
Total long-term debt and capital and financing lease obligations	4,816,304		5,142,291
Less current portion	278,848		602,501
Total long-term debt and capital and financing lease obligations, less current portion	$	4,537,456	$	4,539,790

As of June 30, 2018 and December 31, 2017, the current portion of long-term debt within the Company's condensed consolidated financial statements includes $50.2 million and $30.1 million, respectively, of mortgage notes payable secured by assets held for sale. This debt will be either assumed by the prospective purchasers or be repaid with the proceeds from the sales. Refer to Note 4 for more information about the Company's assets held for sale.

Credit Facilities

On December 19, 2014, the Company entered into a Fourth Amended and Restated Credit Agreement with General Electric Capital Corporation (which has since assigned its interest to Capital One Financial Corporation), as administrative agent, lender and swingline lender, and the other lenders from time to time parties thereto. The agreement currently provides for a total commitment amount of $400.0 million, comprised of a $400.0 million revolving credit facility (with a $50.0 million sublimit for letters of credit and a $50.0 million swingline feature to permit same day borrowing) and an option to increase the revolving credit facility by an additional $250.0 million, subject to obtaining commitments for the amount of such increase from acceptable lenders. The maturity date is January 3, 2020, and amounts drawn under the facility bear interest at 90-day LIBOR plus an applicable margin from a range of 2.50% to 3.50%. The applicable margin varies based on the percentage of the total commitment drawn, with a 2.50% margin at utilization equal to or lower than 35%, a 3.25% margin at utilization greater than 35% but less than or equal to 50%, and a 3.50% margin at utilization greater than 50%. The quarterly commitment fee on the unused portion of the facility is 0.25% per annum when the outstanding amount of obligations (including revolving credit, swingline and term loans and letter of credit obligations) is greater than or equal to 50% of the total commitment amount or 0.35% per annum when such outstanding amount is less than 50% of the total commitment amount.

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

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

The 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 agreement and all amounts owing under the agreement becoming immediately due and payable and/or could trigger cross default provisions in our other outstanding debt and lease agreements.

As of June 30, ~~2017, there was~~2018, no borrowings were outstanding ~~balance under this~~on the revolving credit facility and ~~there were $35.3~~$41.7 million of letters of credit were outstanding under this credit facility. ~~In addition to the sublimit for letters of credit on this credit facility, the~~The Company also had separate unsecured letter of credit facilities of up to ~~$64.5~~$66.2 million in the aggregate as of June 30, ~~2017.~~2018. Letters of credit totaling ~~$64.4~~$66.1 million had been issued under these separate facilities as of ~~that date.~~June 30, 2018.

~~2017~~2018 Financings

In ~~June 2017,~~April 2018, the Company obtained ~~a $54.7~~$247.6 million ~~non-recourse supplemental loan, secured by first mortgages on seven communities. The loan bears interest at a fixed rate~~ of ~~4.69% and matures on March 1, 2022. Proceeds from the loan added to the Company's liquidity.~~

~~In July 2017, the Company completed the refinancing of two existing loan portfolios~~debt secured by the non-recourse first mortgages on 2211 communities. The $221.3 million of proceeds from the refinancing were primarily utilized to pay off $188.1 million and $13.6 million of mortgage debt maturing in April 2018 and January 2021, respectively. The mortgage facility has a 10 year term, and 70%Sixty percent of the principal amount bears interest at a fixed rate of ~~4.81%~~4.55%, and the remaining ~~30%~~forty percent of the principal amount bears interest at a variable rate ofequal to the 30-day LIBOR plus a margin of ~~244~~189 basis points.

The ~~Company plans~~debt matures in May 2028. The $247.6 million of proceeds from the financing were primarily utilized to fund the acquisition of five communities from HCP and to repay $43.0 million of outstanding mortgage debt ~~maturing~~scheduled to mature in May 2018. See Note 4 to the ~~upcoming year through current liquidity, future operating cash flows, and both normal-course refinancings and future refinancing~~condensed consolidated financial statements for more information regarding the acquisitions of ~~under-levered assets.~~communities from HCP.

Convertible Debt

In June 2011, the Company completed a registered offering of $316.3 million aggregate principal amount of 2.75% convertible senior notes due June 15, 2018 (the "Notes"). ~~As of June 30, 2017, the $302.5~~The Company repaid $316.3 million ~~carrying value of the Notes was included~~ in ~~the current portion of long-term debt within the condensed consolidated balance sheet. It is the Company’s current intent and policy~~cash to settle the ~~principal amount~~Notes at their maturity on June 15, 2018.

Financial Covenants

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

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

As of June 30, ~~2017,~~2018, the Company is in compliance with the financial covenants of its outstanding debt and lease agreements.

9.10. Litigation

The Company has been and is currently involved in litigation and claims, including putative class action claims from time to time, incidental to the conduct of its business which are generally comparable to other companies in the senior living ~~industry.~~and healthcare industries. Certain claims and lawsuits allege large damage amounts and may require significant costs to defend and resolve. As a result, the Company maintains general liability and professional liability 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 and for claims or portions of claims that are not covered by such policies.

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

~~10.~~11. Supplemental Disclosure of Cash Flow Information



	Six Months Ended June 30,
(in thousands)	2018			2017
Supplemental Disclosure of Cash Flow Information:
Interest paid	$	133,000		$	155,389
Income taxes paid, net of refunds	$	1,421		$	1,876

Additions to property, plant and equipment and leasehold intangibles, net:
Property, plant and equipment and leasehold intangibles, net	$	105,266		$	91,014
Accounts payable	15,192			(1,444		)
Net cash paid	$	120,458		$	89,570
Acquisition of assets, net of related payables:
Property, plant and equipment and leasehold intangibles, net	$	237,563		$	—
Other intangible assets, net	(4,796		)	400
Capital and financing lease obligations	36,120			—
Other liabilities	2,433			—
Net cash paid	$	271,320		$	400


	Six Months Ended June 30,
(in thousands)	2017			2016
Supplemental Disclosure of Cash Flow Information:
Interest paid	$	155,389		$	175,386
Income taxes paid, net of refunds	$	1,876		$	1,997
Additions to property, plant and equipment and leasehold intangibles, net:
Property, plant and equipment and leasehold intangibles, net	$	91,014		$	158,841
Accounts payable	(1,444		)	31,219
Net cash paid	$	89,570		$	190,060
Acquisition of assets, net of related payables:
Property, plant and equipment and leasehold intangibles, net	$	—		$	19,457
Other intangible assets, net	400			(7,300		)
Net cash paid	$	400		$	12,157
Proceeds from sale of assets, net:
Prepaid expenses and other assets	$	(13,954	)	$	(319	)	$	(1,991	)	$	(13,954	)
Assets held for sale	(20,952		)	(42,714		)	(18,758		)	(20,952		)
Property, plant and equipment and leasehold intangibles, net	(11,598		)	—			(87,864		)	(11,598		)
Investments in unconsolidated ventures	(26,301		)	—			(58,179		)	(26,301		)
Long-term debt	7,552			—			—			7,552
Capital and financing lease obligations							93,514			—
Refundable entrance fees and deferred revenue	30,771			—			8,345			30,771
Other liabilities	39			—			789			39
Loss (gain) on sale of assets, net	1,150			(2,551		)
(Gain) loss on lease termination	(1,162		)	—
(Gain) loss on sale of assets, net							(66,753		)	1,150
Loss on lease termination and modification, net							—			(1,162		)
Net cash received	$	(34,455	)	$	(45,584	)	$	(130,897	)	$	(34,455	)
Lease termination and modification, net
Prepaid expenses and other assets							$	(2,000	)	$	—
Property, plant and equipment and leasehold intangibles, net							(52,920		)	—
Capital and financing lease obligations							21,898			—
Deferred liabilities							67,950			—
Loss on lease termination and modification, net							22,260			—
Net cash paid ⁽¹⁾							$	57,188		$	—
Formation of the Blackstone Venture:
Prepaid expenses and other assets	$	(8,173	)	$	—		$	—		$	(8,173	)
Property, plant and equipment and leasehold intangibles, net	(768,897		)	—			—			(768,897		)
Investments in unconsolidated ventures	66,816			—			—			66,816
Capital and financing lease obligations	879,959			—			—			879,959
Deferred liabilities	7,504			—			—			7,504
Other liabilities	1,998			—			—			1,998
Net cash paid	$	179,207		$	—		$	—		$	179,207

Supplemental Schedule of Non-cash Operating, Investing and Financing Activities:
Assets designated as held for sale:
Prepaid expenses and other assets	$	(106	)	$	(836	)	$	—		$	106
Assets held for sale	14,122			288,659			58,445			(14,122		)
Property, plant and equipment and leasehold intangibles, net	(14,016		)	(261,639		)	(58,445		)	14,016
Goodwill	—			(28,568		)
Asset impairment	—			2,384
Net	$	—		$	—		$	—		$	—
Lease termination and modification, net
Prepaid expenses and other assets							$	(2,813	)	$	—
Property, plant and equipment and leasehold intangibles, net							2,959			—
Capital and financing lease obligations							(2,375		)	—
Deferred liabilities							(122,304		)	—
Other liabilities							326			—
Loss on lease termination and modification, net							124,207			—
Net							$	—		$	—

(1)

The net cash paid to terminate community leases is presented within the condensed consolidated statement of cash flows based upon the lease classification of the terminated leases. Net cash paid of $46.6 million for the termination of operating leases is presented within net cash provided by operating activities and net cash paid of $10.5 million for the termination of capital leases is presented within net cash used in financing activities for the six months ended June 30, 2018.

~~11.~~

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated statement of cash flows that sums to the total of the same such amounts shown in the condensed consolidated statement of cash flows.



	June 30, 2018		December 31, 2017
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	126,637	$	222,647
Restricted cash	39,015		37,189
Long-term restricted cash	25,010		22,710
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statement of cash flows	$	190,662	$	282,546

12. Facility Operating Leases

As of June 30, 2018, the Company operated 385 communities under long-term leases (258 operating leases and 127 capital and financing leases). The substantial majority of the Company's lease arrangements are structured as master leases. Under a master lease, numerous communities are leased through an indivisible lease. The Company typically guarantees the performance and lease payment obligations of its subsidiary lessees under master leases. Due to the nature of such master leases, it is difficult to restructure the composition of such leased portfolios or economic terms of the leases without the consent of the applicable landlord. In addition, an event of default related to an individual property or limited number of properties within a master lease portfolio may result in a default on the entire master lease portfolio.

The community leases contain other customary terms, which may include assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions and financial covenants, such as those requiring the Company to maintain prescribed minimum net worth and stockholders' equity levels and lease coverage ratios, and not to exceed prescribed leverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community and/or entity basis. In addition, the Company's lease documents generally contain non-financial covenants, such as those requiring the Company to comply with Medicare or Medicaid provider requirements.

The Company's failure to comply with applicable covenants could constitute an event of default under the applicable lease documents. Many of the Company's debt and lease documents contain cross-default provisions so that a default under one of these instruments could cause a default under other debt and lease documents (including documents with other lenders and lessors). Certain leases contain cure provisions, which generally allow the Company to post an additional lease security deposit if the required covenant is not met. Furthermore, the Company's leases are secured by its communities and, in certain cases, a guaranty by the Company and/or one or more of its subsidiaries.

As of June 30, 2018, the Company is in compliance with the financial covenants of its long-term leases.

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

follows:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
(in thousands)													2018			2017			2018			2017
Cash basis payment	$	90,599		$	96,031		$	185,203		$	191,611		$	87,115		$	90,599		$	176,708		$	185,203
Straight-line (income) expense	(3,119		)	(523		)	(6,126		)	3,412			(2,430		)	(3,119		)	(8,595		)	(6,126		)
Amortization of (above) below market lease, net	(1,697		)	(1,733		)	(3,394		)	(3,466		)	(1,636		)	(1,697		)	(3,574		)	(3,394		)
Amortization of deferred gain	(1,093		)	(1,093		)	(2,186		)	(2,186		)	(1,089		)	(1,093		)	(2,179		)	(2,186		)
Facility lease expense	$	84,690		$	92,682		$	173,497		$	189,371		$	81,960		$	84,690		$	162,360		$	173,497

~~12.~~13. Income Taxes

The difference between the statutory tax ~~statutory~~ rate and the Company's effective tax rates for the three and six months ended June 30, 2018 and June 30, 2017 reflects a decrease in the Company's federal statutory tax rate from 35% to 21% as a result of the Tax Act and ~~2016 was primarily due to~~a decrease in the valuation allowance ~~against~~recorded in 2018 as compared to 2017. These decreases were offset by the elimination of deductibility for qualified performance-based compensation of covered employees in 2018 as a result of the Tax Act, the negative tax benefit on the vesting of restricted stock, a direct result of the Company's ~~deferred tax assets.~~lower stock price in 2018, and the non-deductible write-off of goodwill.

The valuation allowance during the three and six months ended June 30, ~~2017~~2018 reflects an additional allowance of ~~$15.2~~$30.3 million and $54.9 million, respectively, established against the current period operating ~~loss.~~ loss and is reflective of the Company's quarterly calculation of the reversal of existing tax assets and liabilities and the impact of the Company's acquisitions, dispositions, and other significant transactions, including the impact of the Tax Act which allows for the unlimited carryover of net operating losses created in 2018 and beyond.

The increase in the valuation allowance during the six months ended June 30, 2017 iswas comprised of multiple components. The increase ~~includes~~included $85.0 million related to the removal of future timing differences as a result of the formation of the Blackstone Venture and termination of leases associated therewith. In addition, the Company increased its valuation allowance by $48.5 million upon the adoption of ASU 2016-09. The $48.5 million ~~offsets~~offset the increase to the Company's net operating loss carryforward position previously reflected in an additional paid-in capital pool, and accordingly, ~~does~~did not impact the current period income tax position. The remaining change of approximately $27.0 million for the six months ended June 30, 2017 reflects the allowance established against ~~the current period~~that period's operating loss.

The Company recorded an aggregate deferred federal, state and local tax benefit of $46.4 million and $55.9 million as a result of the operating loss for the three and six months ended June 30, 2018, respectively, which was offset by an increase in the valuation allowance of $30.3 million and $54.9 million, respectively. The change in the valuation allowance for the three and six months ended June 30, 2018 is the result of the anticipated reversal of future tax liabilities offset by future tax deductions. The Company recorded an aggregate deferred federal, state, and local tax benefit of $18.2 million and $31.7 million as a result of the operating loss for the three and six months ended June 30, 2017, respectively, which was offset by an increase in the valuation allowance of $15.2 million and $27.0 million, respectively. The Company recorded an aggregate deferred federal, state, and local tax benefit of $3.6 million and $16.8 million as a result of the operating loss for the three and six months ended June 30, 2016, respectively, which was offset by an increase in the valuation allowance of $3.0 million and $17.2 million, respectively.

The Company evaluates its deferred tax assets each quarter to determine if a valuation allowance is required based on whether it is more likely than not that some portion of the deferred tax asset would not be realized. The Company's valuation allowance as of June 30, ~~2017~~2018 and December 31, ~~2016~~2017 is ~~$424.9~~$391.0 million and ~~$264.3~~$336.1 million, respectively.

For the year ended December 31, 2017, the Company estimated the impact of the Tax Act on state income taxes reflected in its income tax benefit. Reasonable estimates for the Company's state and local provision continue to be made based on the Company's analysis of tax reform. These provisional amounts have not been adjusted for the three and six months ended June 30, 2018 but may be adjusted in future periods during 2018 when additional information is obtained. In addition, the Tax Act limits the annual deductibility of a corporation's net interest expense unless it elects to be exempt from such deductibility limitation under the real property trade or business exception. The Company plans to elect the real property trade or business exception in 2018. As such, the Company will be required to apply the alternative depreciation system ("ADS") to all current and future residential real property and qualified improvement property assets. This change did not have a material effect for the three and six months ended June 30, 2018 but will impact future tax depreciation deductions and may impact the Company's valuation allowance. The Company is unable to estimate the future impact of this change at this time. Additional information that may affect the Company's provisional amounts would include further clarification and guidance on how the Internal Revenue Service will implement tax reform and further clarification and guidance on how state taxing authorities will implement tax reform and the related effect on the Company's state and local income tax returns, state and local net operating losses and corresponding valuation allowances.

The Company recorded interest charges related to its tax contingency reserve for cash tax positions for the three and six months ended June 30, ~~2017~~2018 and ~~2016~~June 30, 2017 which are included in income tax expense or benefit for the period. Tax returns for years ~~2012~~2013 through ~~2015~~2016 are subject to future examination by tax authorities. In addition, the net operating losses from prior years are subject to adjustment under examination.

~~13.~~

14. Variable Interest Entities

AtAs of June 30, ~~2017,~~2018, the Company has equity interests in unconsolidated VIEs. The Company has determined that it does not have the power to direct the activities of the VIEs that most significantly impact the VIEs' economic performance and is not the primary beneficiary of these VIEs in accordance with ASC 810. The Company's interests in the VIEs are, therefore, accounted for under the equity method of accounting.

The Company holds a 51% equity interest, and HCP owns a 49% interest, in a venture that owns and operates entry fee CCRCs (the "CCRC Venture"). The CCRC Venture's opco has been identified as a VIE. The equity members of the CCRC Venture's opco share certain operating rights, and the Company acts as manager to the CCRC Venture opco. However, the Company does not consolidate this VIE because it does not have the ability to control the activities that most significantly impact this VIE's economic performance. The assets of the CCRC Venture opco primarily consist of the CCRCs that it owns and leases, resident fees receivable,

notes receivable and cash and cash equivalents. The obligations of the CCRC Venture opco primarily consist of community lease obligations, mortgage debt, accounts payable, accrued expenses and refundable entrance fees.

The Company holds an equity ownership interest in each of the propco and opco of three ventures ("RIDEA Ventures") that operate senior housing communities in a RIDEA structure. As of June 30, 2017, the Company's equity ownership interest is 10% for each of the RIDEA Ventures. The RIDEA Ventures have been identified as VIEs. The equity members of the RIDEA Ventures share certain operating rights, and the Company acts as manager to the opcos of the RIDEA Ventures. However, the Company does not consolidate these VIEs because it does not have the ability to control the activities that most significantly impact the economic performance of these VIEs. The assets of the RIDEA Ventures primarily consist of the senior housing communities that the RIDEA Ventures own, resident fees receivable, and cash and cash equivalents. The obligations of the RIDEA Ventures primarily consist of notes payable, accounts payable and accrued expenses.

The Company holds a 15% equity ownership interest in the Blackstone Venture. The Blackstone Venture has been identified as a VIE due to the Company lacking substantive participation rights in the management of the venture and the Company lacking kick-out rights over the managing member. The equity members of the Blackstone Venture share certain operating rights and the Company acts as manager to 60 communities owned by the Blackstone Venture. However, the Company does not consolidate this VIE because it does not have the ability to control the activities that most significantly impact the economic performance of the VIE. The assets of the Blackstone Venture primarily consist of senior housing communities, resident fees receivable and cash and cash equivalents. The obligations of the Blackstone Venture primarily consist of long-term mortgage debt, accounts payable and accrued expenses. In addition to $636.2 million of long-term mortgage debt, the Blackstone Venture initially obtained $66.8 million of mortgage debt that was payable in 2017. In the event that refinancing proceeds for the $66.8 million of mortgage debt were insufficient to repay the debt principal amount, the Company may have been required to lend the amount of the shortfall, up to $12.0 million, to the Blackstone Venture. In June 2017, the Blackstone Venture completed the refinancing of the $66.8 million mortgage debt payable in 2017 and the Company was not required to lend any amounts to the Blackstone Venture. As of June 30, ~~2017,~~2018, the Company leases two communities from the Blackstone Venture with annual lease payments of approximately ~~$2.5~~$2.6 million. Under the terms of the lease agreements, the Company may be required to purchase the two leased communities for an amount equal to the greater of the fair market value of the communities or $33.8 million if there is an event of default under the lease agreement. ~~See Note 4 for more information about the Company's entry into the Blackstone Venture.~~

The carrying value and classification of the related assets, liabilities and maximum exposure to loss as a result of the Company's involvement with these VIEs are summarized below atas of June 30, ~~2017~~2018 (in millions):


VIE Type	Asset Type	Maximum Exposure to Loss		Carrying Amount		Asset Type	Maximum Exposure to Loss		Carrying Value
CCRC Venture opco	Investment in unconsolidated ventures	$	50.7	$	50.7	Investment in unconsolidated ventures	$	25.4	$	25.4
RIDEA Ventures	Investment in unconsolidated ventures	$	76.6	$	76.6
Blackstone Venture	Investment in unconsolidated ventures	$	44.6	$	44.6

As of June 30, ~~2017,~~2018, the Company is not required to provide financial support, through a liquidity arrangement or otherwise, to its unconsolidated VIEs.

~~14.~~15. Revenue

Disaggregation of Revenue

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



	Three Months Ended June 30, 2018
(in thousands)	Retirement Centers		Assisted Living		CCRCs-Rental		Brookdale Ancillary Services		Total
Private pay	$	158,405	$	503,806	$	73,392	$	157	$	735,760
Government reimbursement	888		18,221		21,379		90,605		131,093
Other third-party payor programs	—		—		10,025		19,091		29,116
Total resident fee revenue	$	159,293	$	522,027	$	104,796	$	109,853	$	895,969



	Three Months Ended June 30, 2017
(in thousands)	Retirement Centers		Assisted Living		CCRCs-Rental		Brookdale Ancillary Services		Total
Private pay	$	161,362	$	528,516	$	77,116	$	186	$	767,180
Government reimbursement	886		18,914		26,283		95,763		141,846
Other third-party payor programs	—		—		10,803		14,241		25,044
Total resident fee revenue	$	162,248	$	547,430	$	114,202	$	110,190	$	934,070



	Six Months Ended June 30, 2018
(in thousands)	Retirement Centers		Assisted Living		CCRCs-Rental		Brookdale Ancillary Services		Total
Private pay	$	315,912	$	1,018,070	$	144,113	$	426	$	1,478,521
Government reimbursement	1,778		36,237		45,085		183,232		266,332
Other third-party payor programs	—		—		20,667		36,715		57,382
Total resident fee revenue	$	317,690	$	1,054,307	$	209,865	$	220,373	$	1,802,235



	Six Months Ended June 30, 2017
(in thousands)	Retirement Centers		Assisted Living		CCRCs-Rental		Brookdale Ancillary Services		Total
Private pay	$	332,979	$	1,098,469	$	171,739	$	337	$	1,603,524
Government reimbursement	1,889		39,498		59,111		194,297		294,795
Other third-party payor programs	—		—		25,150		27,528		52,678
Total resident fee revenue	$	334,868	$	1,137,967	$	256,000	$	222,162	$	1,950,997

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

Contract Balances

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

Resident fee revenue for recurring and routine monthly services is generally billed monthly in advance. Resident fee revenue for standalone or certain ancillary services is generally billed monthly in arrears. Additionally, non-refundable community fees are generally billed and collected in advance or upon move-in of a resident under residency agreements for independent living and assisted living services. Amounts of revenue that are collected from residents in advance are recognized as deferred revenue until the performance obligations are satisfied. The Company had total deferred revenue (included within refundable entrance fees and deferred revenue, deferred liabilities, and other liabilities within the condensed consolidated balance sheets) of $115.6 million and $112.4 million, including $58.3 million and $49.7 million of monthly resident fees billed and received in advance, as of June 30, 2018 and December 31, 2017, respectively. For the six months ended June 30, 2018, the Company recognized $68.9 million of revenue that was included in the deferred revenue balance as of January 1, 2018. The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose amounts for remaining performance obligations that have original expected durations of one year or less.

For the three and six months ended June 30, 2018, the Company recognized $4.4 million and $8.9 million of charges within facility operating expenses within the condensed consolidated statement of operations for additions to the allowance for doubtful accounts.

16. Segment Information

As of June 30, ~~2017,~~2018 the Company has five reportable segments: Retirement Centers; Assisted Living; CCRCs-Rental; Brookdale Ancillary Services; and Management Services. Operating segments are defined as components of an enterprise that engage in business activities from which it may earn revenues and incur expenses; for which separate financial information is available; and whose operating results are regularly reviewed by the chief operating decision maker to assess the performance of the individual segment and make decisions about resources to be allocated to the segment.

During the three months ended March 31, 2017, one community moved from the CCRCs-Rental segment to the Retirement Centers segment to more accurately reflect the underlying product offering of the community in the current period given changes to the community. The movement did not change the Company's reportable segments, but it did impact the revenues, expenses and assets reported within the two segments. Revenue and expenses for the three and six months ended June 30, 2016 and total assets for the period ended December 31, 2016 have not been recast.

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

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

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

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

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

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

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


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,					Six Months Ended June 30,
	2017		2016		2017		2016
Revenue
(in thousands)									2018			2017		2018			2017
Revenue:
Retirement Centers ⁽¹⁾	$	162,248	$	169,990	$	334,868	$	339,416	$	159,293		$	162,248	$	317,690		$	334,868
Assisted Living ⁽¹⁾	547,430		613,017		1,137,967		1,230,287		522,027			547,430		1,054,307			1,137,967
CCRCs-Rental ⁽¹⁾	114,202		148,225		256,000		300,485		104,796			114,202		209,865			256,000
Brookdale Ancillary Services ⁽¹⁾	110,190		123,336		222,162		245,528		109,853			110,190		220,373			222,162
Management Services ⁽²⁾	252,402		204,262		452,241		406,270		259,231			252,402		540,199			452,241
	$	1,186,472	$	1,258,830	$	2,403,238	$	2,521,986	$	1,155,200		$	1,186,472	$	2,342,434		$	2,403,238
Segment Operating Income ⁽³⁾
Segment Operating Income: ⁽³⁾
Retirement Centers	$	67,297	$	74,754	$	141,299	$	149,203	$	65,134		$	67,297	$	129,556		$	141,299
Assisted Living	186,921		234,085		404,360		454,895		169,737			186,921		346,275			404,360
CCRCs-Rental	24,344		33,594		59,659		69,063		23,819			24,344		48,482			59,659
Brookdale Ancillary Services	13,103		19,032		28,732		33,550		10,203			13,103		18,521			28,732
Management Services	22,442		18,186		38,336		34,966		17,071			22,442		35,752			38,336
	314,107		379,651		672,386		741,677		285,964			314,107		578,586			672,386

General and administrative (including non-cash stock-based compensation expense)	67,090		90,695		132,650		183,316		60,314			67,090		137,024			132,650
Transaction costs	3,339		441		10,932		1,291		2,593			3,339		7,318			10,932
Facility lease expense	84,690		92,682		173,497		189,371		81,960			84,690		162,360			173,497
Depreciation and amortization	120,887		133,394		248,374		260,531		116,116			120,887		230,371			248,374
Asset impairment	1,559		4,152		22,265		7,527
Loss on facility lease termination	6,368		—		6,368		—
Income from operations	$	30,174	$	58,287	$	78,300	$	99,641
Goodwill and asset impairment									16,103			1,559		446,466			22,265
Loss on facility lease termination and modification									146,467			6,368		146,467			6,368
Income (loss) from operations									$	(137,589	)	$	30,174	$	(551,420	)	$	78,300


	As of				As of
	June 30, 2017		December 31, 2016
Total assets
(in thousands)					June 30, 2018		December 31, 2017
Total assets:
Retirement Centers	$	1,286,639	$	1,452,546	$	1,298,989	$	1,266,076
Assisted Living	5,210,068		5,831,434		3,957,957		4,535,114
CCRCs-Rental	721,810		935,389		723,655		667,234
Brookdale Ancillary Services	279,415		280,530		244,692		257,257
Corporate and Management Services	694,860		717,788		504,354		949,768
Total assets	$	8,192,792	$	9,217,687
					$	6,729,647	$	7,675,449


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


(2)	Management services segment revenue includes management fees and reimbursements ~~for which the Company is the primary obligor~~ of costs incurred on behalf of managed communities.


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

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

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

Certain statements in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to various risks and uncertainties and include all statements that are not historical statements of fact and those regarding our intent, belief or expectations, including, but not limited to, statements relating to ~~the creation~~our redefined strategy, including initiatives undertaken to execute on our strategic priorities and ~~enhancement of stockholder value, the evaluation of options and alternatives to create and enhance stockholder value,~~their intended effect on our ~~strategy,~~results; our operational, sales, marketing and branding ~~initiatives, our portfolio optimization and growth initiatives and our expectations regarding their effect on our results;~~initiatives; our expectations regarding the economy, the senior living industry, senior housing construction, supply and competition, occupancy and pricing and the demand for senior housing; our expectations regarding our revenue, cash flow, operating income, expenses, capital expenditures, including expected levels and reimbursements and the timing thereof, ~~development,~~ expansion, ~~renovation,~~ redevelopment and repositioning opportunities, including Program Max opportunities, and their projected costs, cost savings and synergies, and our liquidity and leverage; our plans and expectations with respect to acquisition, disposition, development, lease restructuring and termination, financing, re-financing and venture transactions and opportunities (including assets ~~currently~~ held for sale, ~~and~~ the pending transactions with HCP, Inc.) and our plans to market in 2018 and sell 26 additional owned communities), including the timing thereof and their effects on our results; our expectations regarding taxes, capital deployment and returns on invested capital, Adjusted EBITDA and Adjusted Free Cash Flow (as those terms are defined in this Quarterly Report on Form 10-Q); our expectations regarding returns to stockholders, our share repurchase program and the payment of dividends; 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 changes in government reimbursement programs and their effect on our results; our plans to expand our offering of ancillary ~~services (therapy, home health and hospice); our plans to acquire additional operating companies, senior housing communities and ancillary services companies (including home health agencies);~~services; and our ability to anticipate, manage and address industry trends and their effect on our business. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "will," "should," "could," "would," "potential," "intend," "expect," "endeavor," "seek," "anticipate," "estimate," "overestimate," "underestimate," "believe," "project," "predict," "continue," "plan," "target" or other similar words or expressions. These ~~forward looking~~forward-looking statements are based on certain assumptions and expectations, and our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Although we believe that expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained and actual results and performance could differ materially from those projected. Factors which could have a material adverse effect on our operations and future prospects or which could cause events or circumstances to differ from the forward-looking statements include, but are not limited to, the risk associated with the current global economic situation and its impact upon capital markets and liquidity; changes in governmental reimbursement programs; the risk of overbuilding, new supply and new ~~supply;~~competition; our inability to extend (or refinance) debt (including our credit and letter of credit ~~facilities and our outstanding convertible notes)~~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 lease ~~payments;~~payments and to fund our planned capital projects; risks related to the implementation of our redefined strategy, including initiatives undertaken to execute on our strategic priorities and their effect on our results; the effect of our indebtedness and long-term leases on our liquidity; the effect of our non-compliance with any of our debt or lease agreements (including the financial covenants contained therein) and the risk of lenders or lessors declaring a cross default in the event of our non-compliance with any such agreements; 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 our share 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 acquisition, disposition, lease restructuring and termination, financing, re-financing and venture transactions (including assets ~~currently~~ held for sale, ~~and~~ the pending transactions with HCP, Inc.) and our plans to market in 2018 and sell 26 additional owned communities) on agreed upon terms or at all, including in respect of the satisfaction of closing conditions, the risk that regulatory approvals are not obtained or are subject to unanticipated conditions, and uncertainties as to the timing of ~~closing;~~closing, and our ability to identify and pursue any such opportunities in the future; our ability to successfully integrate acquisitions; 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 wage pressure and union activity; departure of our key ~~officers;~~officers and potential disruption caused by changes in management; increases in market interest rates; environmental contamination at any of our communities; 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; unanticipated costs to comply with legislative or regulatory developments, including requirements to obtain emergency power generators for our communities; as

well as other risks detailed from time to time in our filings with the Securities and Exchange Commission, including those set forth under "Item 1A. Risk Factors" contained in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 and Part II, "Item 1A. Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in such SEC filings. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our management's views as of the date of this Quarterly Report on Form 10-Q. We

cannot guarantee future results, levels of activity, performance or achievements, and we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

Executive Overview

As of June 30, ~~2017,~~2018, we are the largest operator of senior living communities in the United States based on total capacity, with ~~1,039~~988 communities in 46 states and the ability to serve approximately ~~102,000~~95,000 residents. We offer our residents access to a full continuum of services across the most attractive sectors of the senior living industry. We operate independent living, assisted living and dementia-care communities and continuing care retirement centers ("CCRCs"). Through our ancillary services programs, we also offer a range of ~~outpatient therapy,~~ home health, hospice, and ~~hospice~~outpatient therapy services to residents of many of our communities and to seniors living outside of our communities.

We ~~intend to be the leading provider of senior living solutions, and we believe that we are positioned to take advantage of favorable demographic trends over time. We also~~ believe that we operate in the most attractive sectors of the senior living industry, ~~with opportunities~~and our goal is to ~~increase our revenues through providing a combination of~~be the first choice in senior living by being the nation’s most trusted and effective senior living provider and employer. Our community and service offerings combine housing, ~~hospitality services, ancillary services and~~ health care, hospitality, and ancillary services. Our senior living communities offer residents a supportive home-like setting, assistance with activities of daily living ~~(such~~(ADL) such as eating, bathing, dressing, toileting and transferring/~~walking)~~walking and, in certain communities, licensed skilled nursing services. We also provide ancillary services, including home health, hospice and outpatient therapy ~~home health services and hospice~~ services to residents of many of our ~~residents.~~communities and to seniors living outside of our communities. By providing residents with a range of service options as their needs change, we provide greater continuity of care, enabling seniors to ~~"age-in-place" and thereby~~"age-in-place," which we believe enables them to maintain residency with us for a longer period of time. The ability of residents to age-in-place is also beneficial to our residents and their families who are concerned with care decisions for their elderly relatives. With our platform of a range of community and service offerings, we believe that we are positioned to take advantage of favorable demographic trends over time.

Leadership and Our Strategy

During the first quarter of 2018, the Company's Board of Directors made several changes to our key leadership. Effective February 28, 2018, Lucinda M. Baier, who had served as our Chief Financial Officer since 2015, was appointed as our President and Chief Executive Officer and member of the Board of Directors, at which time the employment of our former President and Chief Executive Officer was terminated. In addition, the employment of our former Executive Vice President and Chief Administrative Officer was terminated effective March 9, 2018. Ms. Baier continued to serve as our principal financial officer until Teresa F. Sparks was appointed as our interim Chief Financial Officer effective March 28, 2018.

For 2018, we have re-evaluated and redefined our strategic priorities, which are now focused on our three primary stakeholders: our stockholders, our associates, and, always at our foundation, our residents, patients and their families. Through our redefined strategy, we intend to provide attractive long-term returns to our stockholders; attract, engage, develop and retain the best associates; and earn the trust and endorsements of our residents, patients and their families.

Stockholders. Our stockholders' continued investment in us allows us to advance our mission to our residents and their families. Therefore we believe we must balance our mission with an emphasis on margin. With this strategic priority, we intend to take actions to provide long-term returns to our stockholders by focusing on growing RevPAR, Adjusted EBITDA and Adjusted Free Cash Flow.

Associates. Brookdale's culture is based on servant leadership, and our associates are the key to attracting and caring for residents and creating value for all of our stakeholders. Through this strategic priority, we intend to create a compelling value proposition for our associates in the areas of compensation, leadership, career growth and meaningful work. In 2017, we took the first corrective steps by investing in community leaders, and in 2018 we are extending this plan deeper in the communities.

Residents, Patients and Their Families. Brookdale continues to be driven by its mission—to enrich the lives of those we serve with compassion, respect, excellence and integrity—and we believe this continued focus is essential to create value for all of our stakeholders. This strategic priority includes enhancing our organizational alignment to foster an environment where our

associates can focus on providing valued, high quality care and personalized service. We intend to win locally through our targeted sales and marketing efforts by differentiating our community and service offerings based on quality, a portfolio of choices, and personalized service delivered by caring associates.

We believe that our successful execution on these strategic priorities will allow us to achieve ~~consistent operational excellence~~our goal to be the first choice in ~~our core businesses. Execution on our strategy is intended to maximize~~senior living by being the ~~value~~nation’s most trusted and effective senior living provider and employer.

As part of our existing platform and to build the foundation for further growth. We have identified five key priorities for which we have developed initiatives and are developing initiatives to support our strategy and have created a transformation process to develop cross-functional initiatives directly tied to key priorities. These five priorities include enhancing our customer and associate experience, improving our marketing and sales processes, simplifying our organization, optimizing our portfolio and leveraging our scale, and innovating for growth. While our focus will be on executing on thisredefined strategy, we plan to continue to evaluate and, where opportunities arise, pursue lease restructurings, development and acquisition opportunities, including selectively ~~purchase~~acquiring existing operating companies, senior living communities, ~~including those that we currently lease or manage,~~ and ancillary services companies. ~~Such~~Any such restructurings or acquisitions may be pursued on our own, or through ~~our~~ investments in ventures. ~~We believe that successful execution upon~~In addition, we intend to continue to evaluate our ~~strategy~~owned and ~~the initiatives supporting our strategy will enable us~~leased community portfolios for opportunities to ~~grow stockholder value~~dispose of owned communities and ~~better fulfill our mission by satisfying more customers, building improved relationships between us, our associates~~terminate leases. As part of this evaluation, during 2018 we have entered into significant lease restructuring and ~~our customers, and by improving our occupancy, revenue, expenses, and liquidity, by increasing the quality and durability~~termination transactions with two of our ~~cash flow,~~largest lessors. In addition, we are executing on our plan to market in 2018 and ~~by reducing our~~sell 28 owned communities, which we believe will generate more than $250 million of proceeds, net of associated debt and ~~lease leverage.~~transaction costs. Two of such communities are included in assets held for sale as of June 30, 2018.

Portfolio Optimization Update

~~We continue to actively explore opportunities to optimize~~During the year ended December 31, 2017, we completed sales of three communities (311 units) and termination of leases on 105 communities (10,014 units), we amended and restated triple-net leases covering substantially all the communities we lease from HCP, Inc. ("HCP") into a master lease, we sold our ~~portfolio through disposing of owned~~10% interest in a RIDEA unconsolidated venture with HCP, and ~~leased communities, restructuring leases and investing in our~~we invested $8.8 million on Program Max ~~initiative. We began 2017 with several pending transactions~~projects, net of $8.1 million of third party lessor reimbursements.

During the six months ended June 30, 2018, we completed the sales of three communities (310 units), terminated triple-net leases on 47 communities (5,264 units), sold our ownership interests in three RIDEA ventures, and acquired six communities (995 units), and management agreements on 17 communities were terminated.

During the remainder of 2018, we expect to complete the dispositions of 15 owned communities (1,489 units) classified as ~~part of this initiative, and each transaction is summarized below. As~~held for sale as of June 30, ~~2017,~~2018, the terminations of our triple-net leases on 23 communities (1,954 units), and the terminations of management agreements on 20 communities (3,155 units). In addition, we continue to execute on our plan to market in 2018 and sell 28 owned ~~360~~ communities, ~~(32,914 units), leased 469~~of which two communities ~~(37,498 units) and provided management services with respect to 210 communities (31,898 units)~~are included in assets held for ~~third parties or unconsolidated ventures in which we have an ownership interest.~~sale as of June 30, 2018.

The closings of the expected sales of assets are subject (where applicable) to our successful marketing of such assets on terms acceptable to us. Further, the closings of the various pending transactions and expected sales of assets are, or will be, subject to the satisfaction of various conditions, including (where applicable) the receipt of regulatory approvals. However, there can be no assurance that the transactions will close or, if they do, when the actual closings will occur.

A summary of the foregoing completed and pending transactions (other than our planned marketing and sale of owned communities), and the impact of dispositions on our results of operations, are below.

HCP Master Lease Transaction and RIDEA Ventures Restructuring

On November 2, 2017, we announced that we had entered into a definitive agreement for a multi-part transaction with HCP. As part of such transaction, we entered into an Amended and Restated Master Lease and Security Agreement ("HCP Master Lease") with HCP effective as of November 1, 2017. The components of the multi-part transaction include:

Master Lease Transactions. We ~~completed dispositions, through sales~~ and ~~lease terminations,~~HCP amended and restated triple-net leases covering substantially all of ~~130~~the communities ~~during~~we leased from HCP as of November 1, 2017 into the period from January 1, 2016 through June 30, 2017. Our condensed consolidated financial statements include resident fee revenue of $6.3 million and $116.2 million, facility operating expenses of $7.5 million and $88.5 million, and cash lease payments of $0.6 million and $26.4 million for the 130 communities forHCP Master Lease. During the three months ended June 30, ~~2017 and June 30, 2016, respectively. Our condensed consolidated financial statements include resident fee revenue~~2018, we acquired two communities (208 units) for an aggregate purchase price of ~~$82.3~~$35.4 million and ~~$236.1~~leases with respect to ten communities (1,169 units) were terminated, and such communities were removed from the HCP Master Lease. We continue to manage these ten communities on an interim basis until operations of such communities are transitioned to a third party.

Pursuant to the HCP Master Lease, 23 additional communities (1,954 units) will be removed from the HCP Master Lease on or before November 1, 2018. However, if HCP has not transitioned operations and/or management of such communities to a third party prior to such date, we will continue to operate the foregoing 23 communities on an interim basis and such communities will, from and after such time, be reported in the Management Services segment. In addition to the foregoing 35 communities, we continue to lease 43 communities pursuant to the terms of the HCP Master Lease, which have the same lease rates and expiration and renewal terms as the applicable prior instruments, except that effective January 1,

2018, we received a $2.5 million ~~facility operating expenses~~annual rent reduction for two communities. The HCP Master Lease also provides that we may engage in certain change in control and other transactions without the need to obtain HCP's consent, subject to the satisfaction of ~~$62.9~~certain conditions.

RIDEA Ventures Restructuring. Pursuant to the multi-part transaction agreement, HCP acquired our 10% ownership interest in one of our RIDEA ventures with HCP in December 2017 for $32.1 million (for which we recognized a $7.2 million gain on sale) and ~~$177.0~~our 10% ownership interest in the remaining RIDEA venture with HCP in March 2018 for $62.3 million (for which we recognized a $41.7 million gain on sale). We provided management services to 59 communities (9,585 units) on behalf of the two RIDEA ventures as of November 1, 2017. Pursuant to the multi-part transaction agreement, we acquired one community (137 units) for an aggregate purchase price of $32.1 million in January 2018 and ~~cash lease payments~~three communities (650 units) for an aggregate purchase price of ~~$23.7~~$207.4 million in April 2018 and ~~$52.4 million~~retained management 18 of such communities (3,276 units). The amended and restated management agreements for such 18 communities have a term set to expire in 2030, subject to certain early termination rights. In addition, HCP will be entitled to sell or transition operations and/or management of 37 of such communities. Management agreements for seven and 17 such communities (1,429 and 2,367 units, respectively) were terminated by HCP during the ~~130 communities for the~~three and six months ended June 30, ~~2017~~2018 (for which we recognized a $2.8 million and $5.1 million non-cash management contract termination gain, respectively), and we expect the termination of management agreements on the remaining 20 communities (3,155 units) to occur during the remainder of 2018.

We financed the foregoing community acquisitions with non-recourse mortgage financing and proceeds from the sales of our ownership interest in the unconsolidated ventures. See Note 9 to the condensed consolidated financial statements contained in "Item 1. Financial Statements" for more information regarding the non-recourse first mortgage financing.

In addition, we obtained future annual cash rent reductions and waived management termination fees in the multi-part transaction. As a result, we reduced our lease liabilities by $9.7 million for the future annual cash rent reductions and recognized a $9.7 million deferred liability for the consideration received from HCP in advance of the termination of the management agreements for the 37 communities, and reduced the carrying value of capital lease obligations and assets under capital leases by $145.6 million. See Note 4 to the condensed consolidated financial statements contained in "Item 1. Financial Statements" for more information.

Ventas Lease Portfolio Restructuring

On April 26, 2018, we entered into several agreements to restructure a portfolio of 128 communities (10,567 units) we leased from Ventas, Inc. and certain of its subsidiaries (collectively, "Ventas") as of such date, including a Master Lease and Security Agreement (the "Ventas Master Lease"). The Ventas Master Lease amended and restated prior leases comprising an aggregate portfolio of 107 communities (8,459 units) into the Ventas Master Lease. Under the Ventas Master Lease and other agreements entered into on April 26, 2018, the 21 additional communities (2,107 units) leased by us from Ventas pursuant to separate lease agreements have been or will be combined automatically into the Ventas Master Lease upon the first to occur of Ventas' election or the repayment of, or receipt of lender consent with respect to, mortgage debt underlying such communities. We and Ventas agreed to observe, perform and enforce such separate leases as if they had been combined into the Ventas Master Lease effective April 26, 2018, to the extent not in conflict with any mortgage debt underlying such communities. The transaction agreements with Ventas further provide that the Ventas Master Lease and certain other agreements between us and Ventas will be cross-defaulted.

The initial term of the Ventas Master Lease ends December 31, 2025, with two 10-year extension options available to us. In the event of the consummation of a change of control transaction of the Company on or before December 31, 2025, the initial term of the Ventas Master Lease will be extended automatically through December 31, 2029. The Ventas Master Lease and separate lease agreements with Ventas, which are guaranteed at the parent level by us, provide for total rent in 2018 of $175.0 million for the 128 communities, including the pro-rata portion of an $8.0 million annual rent credit for 2018. We will receive an annual rent credit of $8.0 million in 2019, $7.0 million in 2020 and $5.0 million thereafter; provided, that if a change of control of the Company occurs prior to 2021, the annual rent credit will be reduced to $5.0 million. Effective on January 1, 2019, the annual minimum rent will be subject to an escalator equal to the lesser of 2.25% or four times the Consumer Price Index ("CPI") increase for the prior year (or zero if there was a CPI decrease).

The Ventas Master Lease requires us to spend (or escrow with Ventas) a minimum of $2,000 per unit per 24-month period commencing with the 24-month period ending December 31, 2019 and thereafter each 24-month period ending December 31 during the lease term, subject to annual increases commensurate with the escalator beginning with the second lease year of the first extension term (if any). If a change of control of the Company occurs, we will be required, within 36 months following the closing of such transaction, to invest (or escrow with Ventas) an aggregate of $30.0 million in the communities for revenue-enhancing capital projects.

Under the definitive agreements with Ventas, we, at the parent level, must satisfy certain financial covenants (including tangible net worth and leverage ratios) and may consummate a change of control transaction without the need for consent of Ventas so long as certain objective conditions are satisfied, including the post-transaction guarantor's satisfying certain enhanced minimum tangible net worth and maximum leverage ratio, having minimum levels of operational experience and reputation in the senior living industry, and paying a change of control fee of $25.0 million to Ventas.

At our option, which must be exercised on or before April 26, 2019, we may provide notice to Ventas of our election to direct Ventas to market for sale one or more communities with up to approximately $30.0 million of annual minimum rent. Upon receipt of such notice, Ventas will be obligated to use commercially reasonable, diligent efforts to sell such communities on or before December 31, 2020 (subject to extension for regulatory purposes); provided, that Ventas' obligation to sell any such community will be subject to Ventas' receiving a purchase price in excess of a minimum sale price to be mutually agreed by us and Ventas and to certain other customary closing conditions. Upon any such sale, such communities will be removed from the Ventas Master Lease, and the annual minimum rent under the Ventas Master Lease will be reduced by the amount of the net sale proceeds received by Ventas multiplied by 6.25%.

We estimated the fair value of each of the elements of the restructuring transactions. The fair value of the future lease payments is based upon historical and forecasted community cash flows and market data, including a management fee rate of 5% of revenue and a market supported lease coverage ratio. We recognized a $125.7 million loss on lease modification in the three and six months ended June 30, ~~2016, respectively.~~2018, primarily for the extensions of the triple-net lease obligations for communities with lease terms that are unfavorable to us given current market conditions on the amendment date in exchange for modifications to the change of control provisions and financial covenant provisions of the community leases.

Welltower Lease and RIDEA Venture Restructuring

On June 27, 2018 we announced that we had entered into definitive agreements with Welltower Inc. ("Welltower"). The components of the agreements include:

Lease Terminations. We and Welltower agreed to early termination of the Company's triple-net lease obligations on 37 communities (4,095 units) effective June 30, 2018. The two lease portfolios were due to mature in 2028 (27 communities; 3,175 units) and 2020 (10 communities; 920 units). We paid Welltower an aggregate lease termination fee of $58.0 million. We will continue to manage the foregoing 37 communities on an interim basis until the communities are transitioned to new managers and such communities will be reported in the Management Services segment during such interim period. We recognized a $22.6 million loss on lease termination in the three and six months ended June 30, 2018 for the amount by which the aggregate lease termination fee exceeded the net carrying value of the Company's assets and liabilities under operating and capital leases at the lease termination date.

Future Lease Terminations. The parties separately agreed to allow us to terminate leases with respect to, and to remove from the remaining Welltower leased portfolio, a number of communities with annual aggregate base rent up to $5.0 million upon Welltower's sale of such communities, and we would receive a corresponding 6.25% rent credit on Welltower's disposition proceeds.

RIDEA Restructuring. We agreed to sell our 20% equity interest in our existing Welltower RIDEA joint venture to Welltower, effective June 30, 2018, for net proceeds of $33.5 million (for which we recognized a $14.7 million gain on sale during the three and six months ended June 30, 2018). As of June 30, 2018, we provided management services to the 15 venture communities and will continue to manage the communities until the communities are transitioned by Welltower to new managers.

We also elected not to renew two master leases with Welltower scheduled to mature on September 30, 2018 (11 communities; 1,128 units). After conclusion of the foregoing lease expirations, we will continue to operate 74 communities (3,688 units) under triple-net leases with Welltower, and our remaining lease agreements with Welltower will contain an objective change of control standard, which would allow us to engage in certain change of control and other transactions without the need to obtain Welltower's consent, subject to the satisfaction of certain conditions.

Formation of Venture with Blackstone during 2017

On March 29, 2017, we and affiliates of Blackstone Real Estate Advisors VIII L.P. (collectively, "Blackstone") formed a venture (the "Blackstone Venture") that acquired 64 senior housing communities for a purchase price of $1.1 billion. We had previously leased the 64 communities from HCP ~~Inc. ("HCP")~~ under long-term lease agreements with a remaining average lease term of approximately 12 years. At the closing, the Blackstone Venture purchased the 64-community portfolio from HCP subject to the existing leases, and

~~existing leases, and~~ we contributed our leasehold interests for 62 communities and a total of $179.2 million in cash to purchase a 15% equity interest in the Blackstone Venture, terminate leases, and fund our share of closing costs. As of the formation date, we continued to operate two of the communities under lease agreements and began managing 60 of the communities on behalf of the venture under a management agreement with the venture. The two remaining leases will be terminated, pending certain ~~regulatory and other~~ conditions, at which point we will manage the ~~communities; however, there can be no assurance that the terminations will occur or, if they do, when the actual terminations will occur.~~communities. Two of the communities are managed by a third party for the venture.

The results and financial position of the 62 communities for which leases were terminated were deconsolidated from our financial statements prospectively upon formation of the Blackstone Venture. The results of operations of the 62 communities for which leases were terminated were reported in the following segments within the condensed consolidated financial statements through the formation date: Assisted Living (47 communities; 3,322 units), Retirement Centers (eight communities; 1,072 units) and CCRCs-Rental (seven communities; 1,416 units). Our interest in the venture is accounted for under the equity method of accounting.

As a result of ~~this transaction,~~such transactions, during 2017 we recorded a $19.7 million charge within goodwill and asset impairment expense and recorded a provision for income taxes to establish an additional $85.0 million of valuation allowance against our ~~total payment obligations for capital~~federal and ~~financing leases~~state net operating loss carryforwards and ~~operating leases due during the twelve months ending March 31, 2018 decreased by $75.4 million~~tax credits as we expect these carryforwards and ~~$16.6 million, respectively. Additionally, our capital and financing lease obligations within the condensed consolidated balance sheet were reduced by $880.0 million on the closing date.~~credits will not be utilized prior to expiration. See Note 4 ~~and Note 10~~ to the condensed consolidated financial statements contained in "Item 1. Financial Statements" for more ~~information about the formation of the Blackstone Venture.~~information.

~~Community~~ Dispositions of Owned Communities During 2018 and Assets Held for Sale

We began 2017 with 16 of our owned communities (1,423 units) classified as held for sale as of December 31, 2016 and entered into an agreement to sell one community and to terminate the lease for one adjacent community during the three months ended March 31, 2017. During the six months ended June 30, ~~2017,~~2018, we completed the sale of three communities ~~and we terminated the leases~~(310 units) for ~~eight communities. The results~~net cash proceeds of ~~operations of these communities are reported in the Assisted Living (eight communities) and CCRCs - Rental (three communities) segments within~~$12.8 million. See Note 4 to the condensed consolidated financial statements ~~through the respective disposition dates. As of June 30, 2017, 14 communities were classified as held~~contained in "Item 1. Financial Statements" for ~~sale.~~more information.

As of June 30, ~~2017, $91.0~~2018, 15 communities (1,489 units) were classified as held for sale, resulting in $141.1 million ~~was~~being recorded as assets held for sale and ~~$60.5~~$50.2 million of mortgage debt ~~was~~being included in the current portion of long-term debt within the condensed consolidated balance sheet with respect to ~~the 14 communities held for sale as of~~ such ~~date.~~communities. This debt will either be repaid with the proceeds from the sales or be assumed by the prospective purchasers. Two of such communities classified as held for sale as of June 30, 2018 are part of our plan to market in 2018 and sell 28 owned communities.

Dispositions of Owned Communities and Other Lease Terminations During 2017

During the year ended December 31, 2017, we completed the sale of three communities for net cash proceeds of $8.2 million, and we terminated leases for 43 communities otherwise than in connection with the transactions with HCP and Blackstone described above (including terminations of leases for 26 communities pursuant to the transaction with HCP announced in November 2016).

Summary of Impact of Dispositions

The following tables set forth, for the periods indicated, the amounts included within our consolidated financial data for the 94 communities that we disposed through sales and lease terminations during the period from April 1, 2017 through June 30, 2018 through the respective disposition dates:



	Three Months Ended June 30, 2018
(in thousands)	Actual Results		Amounts Attributable to Completed Dispositions		Actual Results Less Amounts Attributable to Completed Dispositions
Resident fees
Retirement Centers	$	159,293	$	15,066	$	144,227
Assisted Living	522,027		34,933		487,094
CCRCs-Rental	104,796		—		104,796
Senior housing resident fees	$	786,116	$	49,999	$	736,117
Facility operating expense
Retirement Centers	$	94,159	$	8,877	$	85,282
Assisted Living	352,290		22,909		329,381
CCRCs-Rental	80,977		—		80,977
Senior housing facility operating expense	$	527,426	$	31,786	$	495,640
Cash lease payments	$	125,228	$	17,442	$	107,786



	Three Months Ended June 30, 2017
(in thousands)	Actual Results		Amounts Attributable to Completed Dispositions		Actual Results Less Amounts Attributable to Completed Dispositions
Resident fees
Retirement Centers	$	162,248	$	23,033	$	139,215
Assisted Living	547,430		60,034		487,396
CCRCs-Rental	114,202		11,394		102,808
Senior housing resident fees	$	823,880	$	94,461	$	729,419
Facility operating expense
Retirement Centers	$	94,951	$	14,355	$	80,596
Assisted Living	360,509		42,666		317,843
CCRCs-Rental	89,858		11,655		78,203
Senior housing facility operating expense	$	545,318	$	68,676	$	476,642
Cash lease payments	$	133,344	$	24,753	$	108,591

The following tables set forth, for the periods indicated, the amounts included within our consolidated financial data for the 158 communities that we disposed through sales and lease terminations during the period from January 1, 2017 through June 30, 2018 through the respective disposition dates:



	Six Months Ended June 30, 2018
(in thousands)	Actual Results		Amounts Attributable to Completed Dispositions		Actual Results Less Amounts Attributable to Completed Dispositions
Resident fees
Retirement Centers	$	317,690	$	32,325	$	285,365
Assisted Living	1,054,307		74,823		979,484
CCRCs-Rental	209,865		1,945		207,920
Senior housing resident fees	$	1,581,862	$	109,093	$	1,472,769
Facility operating expense
Retirement Centers	$	188,134	$	19,364	$	168,770
Assisted Living	708,032		48,569		659,463
CCRCs-Rental	161,383		2,274		159,109
Senior housing facility operating expense	$	1,057,549	$	70,207	$	987,342
Cash lease payments	$	255,483	$	37,364	$	218,119



	Six Months Ended June 30, 2017
(in thousands)	Actual Results		Amounts Attributable to Completed Dispositions		Actual Results Less Amounts Attributable to Completed Dispositions
Resident fees
Retirement Centers	$	334,868	$	54,651	$	280,217
Assisted Living	1,137,967		155,545		982,422
CCRCs-Rental	256,000		49,515		206,485
Senior housing resident fees	$	1,728,835	$	259,711	$	1,469,124
Facility operating expense
Retirement Centers	$	193,569	$	32,873	$	160,696
Assisted Living	733,607		108,171		625,436
CCRCs-Rental	196,341		42,826		153,515
Senior housing facility operating expense	$	1,123,517	$	183,870	$	939,647
Cash lease payments	$	288,899	$	72,053	$	216,846

The following table sets forth the number of communities and units disposed of during the six months ended June 30, 2018 and twelve months ended December 31, 2017:



	Six Months Ended June 30,	Twelve Months Ended December 31,
	2018	2017
Number of communities
Retirement Centers	10	10
Assisted Living	39	86
CCRCs-Rental	1	12
Total	50	108
Total units
Retirement Centers	1,756	2,078
Assisted Living	3,582	5,858
CCRCs-Rental	236	2,389
Total	5,574	10,325

The results of operations of the 1434 communities (3,082 units) for which lease terminations have closed or are expected to close following June 30, 2018 and of the 15 communities (1,489 units) held for sale as of June 30, 2018 are reported in the following segments within the condensed consolidated financial statements: Assisted Living ~~(12~~(41 communities; ~~1,050~~3,457 units), Retirement Centers (four communities; 581 units), and CCRCs-Rental ~~(two~~(four communities; ~~222~~533 units). The 14following table sets forth the amounts included within our consolidated financial data for these 49 communities had resident fee revenue of $9.4 million and $9.7 million and facility operating expenses of $7.9 million and $8.1 million for the three months ended June 30, 2017 and June 30, 2016, respectively. The 14 communities had resident fee revenue of $18.9 million and $19.7 million and facility operating expenses of $15.6 million and $16.3 million for the six months ended June 30, ~~2017 and June 30, 2016, respectively.~~2018:

~~Dispositions and Restructurings of Leased Communities~~

On November 1, 2016, we announced that we had entered into agreements to, among other things, terminate triple-net leases with respect to 97 communities, four of which were contributed to an existing unconsolidated venture in which we hold an equity interest and 64 of which were acquired by the Blackstone Venture. In addition to the formation of the Blackstone Venture described above, the transactions include the following components:

We and HCP agreed to terminate triple-net leases with respect to 25 communities (2,031 units), which we expect to occur in stages through the end of fiscal 2017. The results of operations of the 25 communities are reported in the following segments within the consolidated financial statements: Assisted Living (23 communities; 1,759 units) and CCRCs-Rental (two communities; 272 units). The 25 communities had resident fee revenue of $18.6 million and $18.5 million, facility operating expenses of $15.0 million and $14.6 million, and cash lease payments of $2.8 million and $4.9 million for the three months ended June 30, 2017 and June 30, 2016, respectively. The 25 communities had resident fee revenue of $36.9 million and $36.5 million, facility operating expenses of $29.9 million and $29.4 million, and cash lease payments of $5.5 million and $9.8 million for the six months ended June 30, 2017 and June 30, 2016, respectively.

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



(in thousands)	Amounts Attributable to Planned Dispositions
Resident fees
Retirement Centers	$	17,964
Assisted Living	67,464
CCRCs - Rental	11,764
Senior housing resident fees	$	97,192
Facility operating expense
Retirement Centers	$	10,186
Assisted Living	49,675
CCRCs-Rental	10,834
Senior housing facility operating expense	$	70,695
Cash lease payments	$	21,504

Program Max Initiative

During the six months ended June 30, ~~2017,~~2018, we also made progress on our Program Max initiative under which we expand, renovate, redevelop and reposition certain of our existing communities where economically advantageous. For the six months ended June 30, ~~2017,~~2018, we invested ~~$3.9~~$13.4 million on Program Max projects, net of ~~$4.7~~$0.7 million of third party lessor reimbursements. We currently have 10seven Program Max projects that have been approved, most of which have begun construction and are expected to generate 2387 net new units.

Tax Reform

On December 22, 2017, the President signed the Tax Cuts and Jobs Act ("Tax Act") into law. The Tax Act reformed the United States corporate income tax code, including a reduction to the federal corporate income tax rate from 35% to 21% effective January 1, 2018. The Tax Act also eliminated alternative minimum tax (AMT) and the 20-year carryforward limitation for net operating losses incurred after December 31, 2017, and imposes a limit on the usage of net operating losses incurred after such date equal to 80% of taxable income in any given year. The 80% usage limit will not have an economic impact on the Company until its current net operating losses are either utilized or expired. In addition, the Tax Act limits the annual deductibility of a corporation's net interest expense unless it elects to be exempt from such deductibility limitation under the real property trade or business exception. The Company plans to elect the real property trade or business exception in 2018. As such, the Company will be required to apply the alternative depreciation system ("ADS") to all current and future residential real property and qualified improvement property assets. This change did not have a material effect for the six months ended June 30, 2018 but will impact future tax depreciation deductions and may impact the Company’s valuation allowance. The Company is unable to estimate the impact of this change at this time. For the year ended December 31, 2017, reasonable estimates for our state and local provision were made based on our analysis of tax reform. These provisional amounts were not adjusted in the six months ended June 30, 2018 but may be adjusted in future periods during 2018 when additional information is obtained. Additional information that may affect the Company's provisional amounts would include further clarification and guidance on how the Internal Revenue Service will implement tax reform and further clarification and guidance on how state taxing authorities will implement tax reform and the related effect on the Company's state and local income tax returns, state and local net operating losses and corresponding valuation allowances.

Competitive Developments

~~In the third quarter of fiscal~~Beginning in 2016, we ~~began experiencing~~experienced an elevated rate of new openings, with significant new competition opening in several of our ~~markets.~~markets, which adversely affected our occupancy, revenues, and results of operations. We continue to address such competition through ~~more sophisticated pricing tools and~~ pricing initiatives based on the competitive market, current in-place rents and occupancy; focusing on operations, including ensuring high customer satisfaction, protecting key leadership positions and actively engaging district and regional management

in community operations; ~~additional~~local and national marketing efforts, including leveraging our industry leading name through enhanced digital, direct mail and local community outreach; and community segmentation through which we evaluate current community position relative to competition and reposition if necessary (e.g., price, services, amenities and programming). We expect the elevated rate of new openings ~~to continue through most of fiscal 2017 with~~and pressures on our occupancy and rate growth ~~expected~~ to ~~begin to abate in~~continue through 2018.

Summary of Operating Results

The tables below present a summary of our operating results and certain other financial metrics for the three and six months ended June 30, ~~2017~~2018 and ~~2016~~2017 and the amount and percentage of increase or decrease of each applicable ~~item (dollars in millions).~~item.



	Three Months Ended June 30,						Increase (Decrease)
(in millions)	2018			2017			Amount			Percent
Total revenues	$	1,155.2		$	1,186.5		$	(31.3	)	(2.6	)%
Facility operating expense	$	627.1		$	642.4		$	(15.3	)	(2.4	)%
Net income (loss)	$	(165.5	)	$	(46.3	)	$	119.2		NM
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders	$	(165.5	)	$	(46.3	)	$	119.2		NM
Adjusted EBITDA⁽¹⁾	$	142.2		$	160.3		$	(18.1	)	(11.3	)%
Net cash provided by operating activities	$	60.6		$	133.8		$	(73.1	)	(54.7	)%
Adjusted Free Cash Flow⁽¹⁾	$	12.4		$	40.6		$	(28.2	)	(69.6	)%

Three Months Ended
June 30,
Increase
(Decrease)
2017 2016 Amount Percent
Total revenues $ 1,186.5
$ 1,258.8
$ (72.4 ) (5.7 )%
Facility operating expense $ 642.4
$ 693.1
$ (50.7 ) (7.3 )%
Net income (loss) $ (46.3 ) $ (35.5 ) $ 10.8
30.6 %
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders $ (46.3 ) $ (35.5 ) $ 10.8
30.6 %
Adjusted EBITDA⁽¹⁾
$ 160.3
$ 201.5
$ (41.2 ) (20.4 )%
Net cash provided by operating activities $ 133.1
$ 107.5
$ 25.6
23.8 %
Adjusted Free Cash Flow⁽¹⁾
$ 40.0
$ 44.9
$ (4.9 ) (11.0 )%


	Six Months Ended June 30,						Increase (Decrease)					Six Months Ended June 30,						Increase (Decrease)
	2017			2016			Amount			Percent
(in millions)												2018			2017			Amount			Percent
Total revenues	$	2,403.2		$	2,522.0		$	(118.7	)	(4.7	)%	$	2,342.4		$	2,403.2		$	(60.8	)	(2.5	)%
Facility operating expense	$	1,316.9		$	1,409.0		$	(92.1	)	(6.5	)%	$	1,259.4		$	1,316.9		$	(57.5	)	(4.4	)%
Net income (loss)	$	(172.7	)	$	(84.3	)	$	88.4		104.8	%	$	(622.7	)	$	(172.7	)	$	450.0		NM
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders	$	(172.6	)	$	(84.2	)	$	88.4		104.9	%	$	(622.7	)	$	(172.6	)	$	450.1		NM
Adjusted EBITDA⁽¹⁾	$	358.6		$	384.2		$	(25.6	)	(6.7	)%	$	272.2		$	358.6		$	(86.4	)	(24.1	)%
Net cash provided by operating activities	$	199.9		$	177.8		$	22.0		12.4	%	$	98.6		$	200.5		$	(101.9	)	(50.8	)%
Adjusted Free Cash Flow⁽¹⁾	$	103.4		$	72.8		$	30.6		42.1	%	$	17.8		$	104.1		$	(86.2	)	(82.8	)%

(1)

Adjusted EBITDA and Adjusted Free Cash Flow are non-GAAP financial measures we use to assess our operating performance and liquidity. We changed our definition and calculation of Adjusted EBITDA when we reported results for the second quarter of 2016. Prior period amounts of Adjusted EBITDA included in this Quarterly Report on Form 10-Q have been recast to conform to the new definition. See "Non-GAAP Financial Measures" below for important information regarding both ~~measures, including a description of the changes to the definition of Adjusted EBITDA.~~measures.

During the six months ended June 30, ~~2017,~~2018, total revenues were ~~$2.4~~$2.3 billion, a decrease of ~~$118.7~~$60.8 million, or ~~4.7%~~2.5%, over our total revenues for the six months ended June 30, ~~2016.~~2017. Resident fees for the six months ended June 30, ~~2017~~2018 decreased ~~$164.7~~$148.8 million, or ~~7.8%~~7.6%, from the six months ended June 30, ~~2016.~~2017. Management fees ~~increased $3.4~~decreased $2.6 million, or ~~9.6%~~6.7%, from the six months ended June 30, ~~2016,~~2017, and reimbursed costs incurred on behalf of managed communities increased ~~$42.6~~$90.5 million, or ~~11.5%~~21.9%. The decrease in resident fees during the six months ended June 30, ~~2017~~2018 was primarily due to disposition activity, through sales and lease terminations, since the beginning of the prior year period. Weighted average occupancy at the ~~812~~758 communities we owned or leased during both full ~~six-month~~six month periods decreased ~~130~~110 basis ~~points.~~points to 84.6%. The decrease in resident fees at the ~~812~~758 communities we owned or leased during both full ~~six-month~~six month periods was partially offset by a ~~2.0%~~1.0% increase in senior housing average monthly revenue per occupied unit (RevPOR) compared to the prior year ~~six-month~~six month period.

During the six months ended June 30, ~~2017,~~2018, facility operating expenses were $1.3 billion, a decrease of ~~$92.1~~$57.5 million, or ~~6.5%~~4.4%, compared to the six months ended June 30, ~~2016.~~2017. The decrease in facility operating expenses was primarily due to the impact of disposition activity, through sales and lease terminations, since the beginning of the prior year period. Facility operating expenses increased ~~$28.2~~$42.1 million, or ~~2.9%~~4.5%, at the ~~812~~758 communities we owned or leased during both full ~~six-month periods.~~six month periods, primarily due to an increase in labor expense arising from wage rate increases.

Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders for the six months ended June 30, ~~2017~~2018 was ~~$(172.6)~~$(622.7) million, compared to net income (loss) attributable to Brookdale Senior Living Inc. common stockholders of ~~$(84.2)~~$(172.6) million for the six months ended June 30, ~~2016.~~2017. Net income (loss) for the six months ended June 30, ~~2017~~2018 was ~~$(172.7)~~$(622.7) million ~~an increase of 104.8%~~as compared to net income (loss) of ~~($84.3)~~$(172.7) million for the six months ended June 30, ~~2016.~~2017. During the six months ended June 30, ~~2017,~~2018, our Adjusted EBITDA was ~~$358.6~~$272.2 million, a decrease of ~~6.7%~~24.1% compared to the six months ended June 30, ~~2016.~~2017. The decrease in Adjusted EBITDA ~~includes transaction~~is primarily due to increases in community labor expense at the communities operated during both full periods and ~~strategic project costs~~disposition activity, through asset sales and lease terminations, since the beginning of ~~$11.6 million for~~ the ~~six months ended June 30, 2017 and integration, transaction, transaction-related and strategic project costs of $37.1 million for the six months ended June 30, 2016.~~prior year period.

During the six months ended June 30, ~~2017,~~2018, net cash provided by operating activities was ~~$199.9~~$98.6 million, ~~an increase~~a decrease of ~~$22.0~~$101.9 million, or ~~12.4%~~50.8%, over our net cash provided by operating activities for the six months ended June 30, ~~2016.~~2017. During the six months ended June 30, ~~2017,~~2018, our Adjusted Free Cash Flow was ~~$103.4~~$17.8 million, ~~an increase~~a decrease of ~~42.1%~~82.8% when compared to the six months ended June 30, ~~2016.~~ 2017.

Adjusted ~~free cash flow~~EBITDA and Adjusted Free Cash Flow include transaction and organizational restructuring costs of $22.2 million for the six months ended June 30, ~~2016 included $38.3 million of integration,~~2018 and transaction ~~transaction-related~~ and strategic project ~~costs.~~costs of $11.6 million for the six months ended June 30, 2017.

Consolidated Results of Operations

Comparison of Three Months Ended June 30, 2018 and 2017 ~~to June 30, 2016~~

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 condensed consolidated financial statements and the related notes, which are included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

During the three months ended March 31, 2017, one community moved from the CCRCs-Rental segment to the Retirement Centers segment to more accurately reflect the underlying product offering of the community in the current period given changes to the community. The movement did not change our reportable segments, but it did impact the revenues, expenses and operating data reported within the two segments. Revenue, expenses and operating data for the three months ended June 30, 2016 have not been recast.

As of June 30, ~~2017~~2018 our total operations included ~~1,039~~988 communities with a capacity to serve ~~102,310~~approximately 95,000 residents.


(dollars in thousands, except Total RevPAR, RevPAR and RevPOR)	Three Months Ended June 30,											Three Months Ended June 30,						Increase (Decrease)
	2017			2016			Increase (Decrease)			% Increase (Decrease)		2018			2017			Amount			Percent ⁽⁶⁾
Statement of Operations Data:
Revenue
Resident fees
Retirement Centers	$	162,248		$	169,990		$	(7,742	)	(4.6	)%	$	159,293		$	162,248		$	(2,955	)	(1.8	)%
Assisted Living	547,430			613,017			(65,587		)	(10.7	)%	522,027			547,430			(25,403		)	(4.6	)%
CCRCs-Rental	114,202			148,225			(34,023		)	(23.0	)%	104,796			114,202			(9,406		)	(8.2	)%
Brookdale Ancillary Services	110,190			123,336			(13,146		)	(10.7	)%	109,853			110,190			(337		)	(0.3	)%
Total resident fees	934,070			1,054,568			(120,498		)	(11.4	)%	895,969			934,070			(38,101		)	(4.1	)%
Management services ⁽¹⁾	252,402			204,262			48,140			23.6	%	259,231			252,402			6,829			2.7	%
Total revenue	1,186,472			1,258,830			(72,358		)	(5.7	)%	1,155,200			1,186,472			(31,272		)	(2.6	)%
Expense
Facility operating expense
Retirement Centers	94,951			95,236			(285		)	(0.3	)%	94,159			94,951			(792		)	(0.8	)%
Assisted Living	360,509			378,932			(18,423		)	(4.9	)%	352,290			360,509			(8,219		)	(2.3	)%
CCRCs-Rental	89,858			114,631			(24,773		)	(21.6	)%	80,977			89,858			(8,881		)	(9.9	)%
Brookdale Ancillary Services	97,087			104,304			(7,217		)	(6.9	)%	99,650			97,087			2,563			2.6	%
Total facility operating expense	642,405			693,103			(50,698		)	(7.3	)%	627,076			642,405			(15,329		)	(2.4	)%
General and administrative expense	67,090			90,695			(23,605		)	(26.0	)%	60,314			67,090			(6,776		)	(10.1	)%
Transaction costs	3,339			441			2,898			657.1	%	2,593			3,339			(746		)	(22.3	)%
Facility lease expense	84,690			92,682			(7,992		)	(8.6	)%	81,960			84,690			(2,730		)	(3.2	)%
Depreciation and amortization	120,887			133,394			(12,507		)	(9.4	)%	116,116			120,887			(4,771		)	(3.9	)%
Asset impairment	1,559			4,152			(2,593		)	(62.5	)%
Loss of facility lease termination	6,368			—			6,368			NM
Goodwill and asset impairment												16,103			1,559			14,544			NM
Loss on facility lease termination and modification, net												146,467			6,368			140,099			NM
Costs incurred on behalf of managed communities	229,960			186,076			43,884			23.6	%	242,160			229,960			12,200			5.3	%
Total operating expense	1,156,298			1,200,543			(44,245		)	(3.7	)%	1,292,789			1,156,298			136,491			11.8	%
Income from operations	30,174			58,287			(28,113		)	(48.2	)%
Income (loss) from operations												(137,589		)	30,174			(167,763		)	NM
Interest income	804			728			76			10.4	%	2,941			804			2,137			NM
Interest expense	(76,476		)	(96,604		)	(20,128		)	(20.8	)%	(73,901		)	(76,476		)	(2,575		)	(3.4	)%
Debt modification and extinguishment costs	(693		)	(186		)	507			272.6	%	(9		)	(693		)	(684		)	(98.7	)%
Equity in (loss) earnings of unconsolidated ventures	(4,570		)	338			(4,908		)	NM
(Loss) gain on sale of assets, net	(547		)	(198		)	349			176.3	%
Equity in loss of unconsolidated ventures												(1,324		)	(4,570		)	(3,246		)	(71.0	)%
Gain (loss) on sale of assets, net												23,322			(547		)	23,869			NM
Other non-operating income	2,236			2,267			(31		)	(1.4	)%	5,505			2,236			3,269			146.2	%
Income (loss) before income taxes	(49,072		)	(35,368		)	13,704			38.7	%	(181,055		)	(49,072		)	131,983			NM
Benefit (provision) for income taxes	2,735			(123		)	2,858			NM		15,546			2,735			12,811			NM
Net income (loss)	(46,337		)	(35,491		)	10,846			30.6	%	(165,509		)	(46,337		)	119,172			NM
Net (income) loss attributable to noncontrolling interest	50			41			9			22.0	%	21			50			(29		)	(58.0	)%
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders	$	(46,287	)	$	(35,450	)	$	10,837		30.6	%	$	(165,488	)	$	(46,287	)	$	119,201		NM


	Three Months Ended June 30,											Three Months Ended June 30,						Increase (Decrease)
	2017			2016			Increase (Decrease)			% Increase (Decrease)		2018			2017			Amount			Percent ⁽⁶⁾
Selected Operating and Other Data:
Total number of communities (period end)	1,039			1,114			(75		)	(6.7	)%	988			1,039			(51		)	(4.9	)%
Total units operated ⁽²⁾
Period end	101,717			106,751			(5,034		)	(4.7	)%	94,885			101,717			(6,832		)	(6.7	)%
Weighted average	102,194			107,135			(4,941		)	(4.6	)%	96,764			102,194			(5,430		)	(5.3	)%
Owned/leased communities units ⁽²⁾
Period end	70,263			80,519			(10,256		)	(12.7	)%	61,709			70,263			(8,554		)	(12.2	)%
Weighted average	70,833			80,700			(9,867		)	(12.2	)%	66,342			70,833			(4,491		)	(6.3	)%
Total RevPAR ⁽³⁾	$	4,392		$	4,352		$	40		0.9	%	$	4,500		$	4,392		$	108		2.5	%
RevPAR ⁽⁴⁾	$	3,873		$	3,842		$	31		0.8	%	$	3,948		$	3,873		$	75		1.9	%
Owned/leased communities occupancy rate (weighted average)	84.6		%	85.8		%	(1.2		)%	(1.4	)%	84.1		%	84.6		%	(0.5		)%	(0.6	)%
RevPOR ⁽⁵⁾	$	4,580		$	4,476		$	104		2.3	%	$	4,692		$	4,580		$	112		2.4	%

Selected Segment Operating and Other Data:
Retirement Centers
Number of communities (period end)	86			95			(9		)	(9.5	)%	75			86			(11		)	(12.8	)%
Total units ⁽²⁾
Period end	16,071			17,095			(1,024		)	(6.0	)%	13,559			16,071			(2,512		)	(15.6	)%
Weighted average	16,071			17,095			(1,024		)	(6.0	)%	15,083			16,071			(988		)	(6.1	)%
RevPAR ⁽⁴⁾	$	3,365		$	3,315		$	50		1.5	%	$	3,520		$	3,365		$	155		4.6	%
Occupancy rate (weighted average)	87.3		%	88.9		%	(1.6		)%	(1.8	)%	88.1		%	87.3		%	0.8		%	0.9	%
RevPOR ⁽⁵⁾	$	3,857		$	3,727		$	130		3.5	%	$	3,993		$	3,857		$	136		3.5	%
Assisted Living
Number of communities (period end)	713			818			(105		)	(12.8	)%	645			713			(68		)	(9.5	)%
Total units ⁽²⁾
Period end	46,999			53,459			(6,460		)	(12.1	)%	41,266			46,999			(5,733		)	(12.2	)%
Weighted average	47,246			53,521			(6,275		)	(11.7	)%	44,403			47,246			(2,843		)	(6.0	)%
RevPAR ⁽⁴⁾	$	3,862		$	3,818		$	44		1.2	%	$	3,919		$	3,862		$	57		1.5	%
Occupancy rate (weighted average)	83.9		%	85.3		%	(1.4		)%	(1.6	)%	82.9		%	83.9		%	(1.0		)%	(1.2	)%
RevPOR ⁽⁵⁾	$	4,602		$	4,478		$	124		2.8	%	$	4,725		$	4,602		$	123		2.7	%
CCRCs-Rental
Number of communities (period end)	30			43			(13		)	(30.2	)%	28			30			(2		)	(6.7	)%
Total units ⁽²⁾
Period end	7,193			9,965			(2,772		)	(27.8	)%	6,884			7,193			(309		)	(4.3	)%
Weighted average	7,516			10,084			(2,568		)	(25.5	)%	6,856			7,516			(660		)	(8.8	)%
RevPAR ⁽⁴⁾	$	5,028		$	4,866		$	162		3.3	%	$	5,079		$	5,028		$	51		1.0	%
Occupancy rate (weighted average)	83.0		%	83.7		%	(0.7		)%	(0.8	)%	83.0		%	83.0		%	—		%	—	%
RevPOR ⁽⁵⁾	$	6,063		$	5,812		$	251		4.3	%	$	6,115		$	6,063		$	52		0.9	%
Management Services
Number of communities (period end)	210			158			52			32.9	%	240			210			30			14.3	%
Total units ⁽²⁾
Period end	31,454			26,232			5,222			19.9	%	33,176			31,454			1,722			5.5	%
Weighted average	31,361			26,435			4,926			18.6	%	30,422			31,361			(939		)	(3.0	)%
Occupancy rate (weighted average)	84.8		%	86.8		%	(2.0		)%	(2.3	)%



Occupancy rate (weighted average)							83.6	%	84.8	%	(1.2	)%	(1.4	)%
Brookdale Ancillary Services
Outpatient Therapy treatment codes	190,618	476,530	(285,912	)	(60.0	)%
Home Health average daily census	14,821	15,388	(567	)	(3.7	)%	15,238		14,821		417		2.8	%
Hospice average daily census	1,033	737	296		40.2	%	1,337		1,033		304		29.4	%
Outpatient Therapy treatment codes							176,065		190,618		(14,553	)	(7.6	)%


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


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

(3)

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

(4)

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

(5)

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


(6)	NM - Not meaningful

Resident Fees

Resident fee revenue decreased ~~$120.5~~$38.1 million, or ~~11.4%~~4.1%, compared to the prior year period primarily due to disposition activity, through sales and lease terminations of 94 communities, since the beginning of the prior year period. Weighted average occupancy decreased ~~150~~100 basis points at the ~~818~~758 communities we owned or leased during both full periods, ~~primarily due to~~which reflects the impact of new competition in our markets. ~~Additionally, Brookdale Ancillary Services segment revenue decreased $13.1 million, or 10.7%, primarily due to decreases in volume for outpatient therapy services and home health services.~~ The ~~130~~ communities disposed of subsequent to the beginning of the prior year period ~~(including the 62 communities for which the financial results were deconsolidated from our financial statements prospectively upon formation of the Blackstone Venture on March 29, 2017)~~ generated ~~$6.3~~$50.0 million of revenue during the current year period compared to ~~$116.2~~$94.5 million of revenue in the prior year period. The decrease in resident fee revenue was partially offset by a ~~1.8%~~0.9% increase in RevPOR at the ~~818~~758 communities we owned or operated during both full periods compared to the prior year period. Total RevPAR for the consolidated portfolio also increased by ~~0.9%~~2.5% compared to the prior year period.

Retirement Centers segment revenue decreased ~~$7.7~~$3.0 million, or ~~4.6%~~1.8%, primarily due to the impact of dispositions of ~~ten~~12 communities since the beginning of the prior year period, which generated no$15.1 million revenue during the current year period compared to ~~$10.3~~$23.0 million of revenue in the prior year ~~period. This decrease was partially offset by the impact of the reclassification of one community from the CCRCs-Rental segment into this segment during the current~~ period. Retirement Centers segment revenue at the communities we operated during both full periods was ~~$155.4~~$143.7 million ~~for~~during the ~~second quarter of 2017,~~current year period, an increase of ~~$0.4~~$1.3 million, or ~~0.3%~~0.9%, over the prior year period, primarily due to a ~~2.0%~~50 basis point increase in ~~RevPOR at these communities, partially offset by~~weighted average occupancy and a ~~150 basis point decrease~~0.4% increase in ~~occupancy~~RevPOR at these communities.

Assisted Living segment revenue decreased ~~$65.6~~$25.4 million, or ~~10.7%~~4.6%, primarily due to the impact of dispositions of ~~107~~77 communities since the beginning of the prior year period, which generated ~~$1.8~~$34.9 million of revenue during the current year period compared to ~~$66.8~~$60.0 million of revenue in the prior year period. Assisted Living segment revenue at the communities we operated during both full periods was ~~$533.4~~$501.0 million ~~for~~during the ~~second quarter of 2017,~~current year period, a decrease of $2.0 million, or 0.4%, over the prior year period, primarily due to a ~~160~~150 basis point decrease in weighted average occupancy at these communities, partially offset by a ~~1.6%~~1.4% increase in RevPOR at these communities.

CCRCs-Rental segment revenue decreased ~~$34.0~~$9.4 million, or ~~23.0%~~8.2%, primarily due to the impact of dispositions of 13five communities since the beginning of the prior year period, which generated ~~$4.5 million of~~no revenue during the current year period compared to ~~$39.1~~$11.4 million of revenue in ~~the prior year period. Additionally, revenue decreased due to the impact of the reclassification of one~~

~~community out of this segment and into the Retirement Centers segment subsequent to~~ the prior year period. CCRCs-Rental segment revenue at the communities we operated during both full periods was ~~$109.7~~$90.8 million ~~for~~during the ~~second quarter~~current year period, a decrease of ~~2017, an increase of $1.9~~$1.4 million, or ~~1.7%~~1.5%, over the prior year period, primarily due to a ~~2.5% increase in RevPOR at these communities, partially offset by a 70~~110 basis point decrease in weighted average occupancy at these communities.

Brookdale Ancillary Services segment revenue decreased ~~$13.1~~$0.3 million, or ~~10.7%~~0.3%, primarily due to a ~~decreases~~decline in home health revenue, which was partially offset by an increase in volume for ~~outpatient therapy services and home health~~hospice services. During the three months ended December 31, 2016, we significantly reduced the number of outpatient therapy clinics located in our communities as lower reimbursement rates and lower utilization made the business less attractive. For home health in ~~2017,~~2018, CMS has implemented a net ~~0.7%~~0.4% reimbursement reduction, consisting of a ~~2.8%~~1.0% market basket inflation increase, less ~~a 0.3% productivity reduction, a 2.3% rebasing adjustment, and~~ a 0.9% reduction to account for industry wide case-mix ~~growth.~~growth, and the sunset of the rural add-on provision. As a result, we expect our home health reimbursement ~~has been~~to be reduced by approximately ~~3.0%~~0.8% in 2018 compared to ~~the prior year period, which is consistent with our expectations for the remainder of~~ 2017. ~~These decreases were partially offset by an increase in volume for hospice services.~~

Management Services Revenue

Management Services segment revenue, including management fees and reimbursed costs incurred on behalf of managed communities, increased ~~$48.1~~$6.8 million, or ~~23.6%~~2.7%, over the prior year period primarily due to the impact of the adoption of ASU 2014-09, Revenue from Contracts with Customers on January 1, 2018 under the modified retrospective approach. The impact to revenue for reimbursed costs incurred on behalf of managed communities and reimbursed costs incurred on behalf of managed communities as a result of applying ASC 606 was an increase of $11.3 million for the three months ended June 30, 2018, respectively. See Note 2 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information about ASU 2014-09. Management fees of $17.1 million for 2018 include $0.6 million of management fees attributable to communities for which our ~~entry into~~ management agreements ~~with~~were terminated in 2018 and $3.2 million of management fees attributable to communities for which we expect the ~~Blackstone Venture.~~terminations of our management agreements to occur during the remainder of 2018.

Facility Operating Expense

Facility operating expense decreased ~~$50.7~~$15.3 million, or ~~7.3%~~2.4%, over the prior year ~~period~~period. The decrease in facility operating expense is primarily due to disposition activity, through sales and lease terminations, of ~~130~~94 communities since the beginning of the prior year period, which incurred ~~$7.5~~$31.8 million of facility operating expenses during the ~~three months ended June 30, 2017~~current year period compared to ~~$88.5~~$68.7 million of facility operating expenses in the three months ended June 30, 2016. Additionally, Brookdale Ancillary Services segment facility operating expenses decreased $7.2 million, or 6.9%, primarily due to decreases in volume for outpatient therapy services and home health services.prior year period. These decreases were partially offset by an ~~$11.3 million~~ increase in ~~insurance~~labor expense related to positive changes in the three months ended June 30, 2016 to estimates in general liability and professional liability and workers compensation expenses and an increase in salaries and wages arising from wage rate increases at the communities we operated during both full ~~periods.~~periods, reflecting the impact of our investment in salaries and benefits and a tight labor market during the current year period.

Retirement Centers segment facility operating expenses decreased ~~$0.3~~$0.8 million, or ~~0.3%~~0.8%, primarily due to the impact of dispositions of ~~ten~~12 communities since the beginning of the prior year period, which incurred ~~$0.1~~$8.9 million of expenses during the current year period compared to ~~$6.1~~$14.4 million in the prior year period. This decrease was partially offset by an increase in ~~salaries and wages arising from wage rate increases~~labor expense at the communities we operated during both full ~~periods and the impact of the reclassification of one community from the CCRCs-Rental segment into this segment subsequent to the prior year period.~~periods. Retirement Centers segment facility operating expenses at the communities we operated during both full periods were ~~$89.8~~$83.9 million in the current period, an increase of ~~$3.4~~$2.9 million, or ~~3.9%~~3.6%, over the prior year period.

Assisted Living segment facility operating expenses decreased ~~$18.4~~$8.2 million, or ~~4.9%~~2.3%, primarily driven by the impact of dispositions of ~~107~~77 communities since the beginning of the prior year period, which incurred ~~$2.5~~$22.9 million of expenses during the current year period compared to ~~$49.3~~$42.7 million in the prior year period. This decrease was partially offset by a $12.1 million increase in insurance expense related to positive changes in the three months ended June 30, 2016 to estimates in general liability and professional liability and workers compensation expenses and an increase in ~~salaries and wages arising from wage rate increases~~labor expense at the communities we operated during both full periods. Assisted Living segment facility operating expenses at the communities we operated during both full periods were ~~$347.9~~$336.4 million in the current period, an increase of ~~$22.1~~$11.6 million, or ~~6.8%~~3.6%, over the prior year period.

CCRCs-Rental segment facility operating expenses decreased ~~$24.8~~$8.9 million, or ~~21.6%~~9.9%, primarily driven by the impact of dispositions of 13five communities since the beginning of the prior year period, which incurred ~~$4.8 million of~~no expenses during the current year period compared to ~~$33.1~~$11.7 million in the prior year period. ~~Additionally, facility operating expenses decreased due to~~This decrease was partially offset by an increase in labor expense at the ~~impact of the reclassification of one community out of this segment and into the Retirement Centers segment subsequent to the prior year period.~~communities we operated during both full periods. CCRCs-Rental segment facility operating expenses at the communities we ~~operated~~operating during both full periods were ~~$84.7~~$71.4 million in the current period, an increase of ~~$2.7~~$0.6 million, or ~~3.3%~~0.8%, over the prior year period.

Brookdale Ancillary Services segment operating expenses ~~decreased $7.2~~increased $2.6 million, or ~~6.9%~~2.6%, primarily due to ~~decreases~~an increase in ~~volume for outpatient therapy services~~labor expense arising from wage rate increases and ~~home health~~the expansion of our hospice services. During the three months ended December 31, 2016, we significantly reduced the number of outpatient therapy clinics located in our communities as lower reimbursement rates and lower utilization made the business less attractive.

General and Administrative Expense

General and administrative expense decreased ~~$23.6~~$6.8 million, or ~~26.0%~~10.1%, over the prior year period primarily due to a ~~$16.1 million~~ decrease in ~~integration, transaction-related~~salaries and strategic project costs. Integration, transaction-related and strategic project costs were $0.6 million during the current period compared to $16.7 million in the prior year period. Integration costs for 2016 include transition costs associated with organizational restructuring (suchwages expense as ~~severance and retention payments and recruiting expenses), third party consulting expenses directly related to the integration~~a result of acquired communities (in areas such as cost savings and synergy realization, branding and technology and systems work), and internal costs such as training, travel and labor, reflecting time spent by Company personnel on integration activities and projects. Transaction-related costs for 2016 include third party costs directly related to acquisition and disposition activity, community financing and leasing activity and corporate capital structure assessment activities (including shareholder relations advisory matters), and are primarily comprised of legal, finance, consulting, professional fees and other third party costs. Strategic project costs for 2016 include costs associated with strategic projects related to refining our strategy, building out enterprise-wide capabilities (including EMR roll-out project) and reducing costs and achieving synergies by capitalizing on scale. Additionally, a reduction in corporate associate headcount ~~resulted~~ in ~~decreased salaries and wage expense for~~ the ~~three months ended June 30, 2017.~~current year.

Transaction Costs

Transaction costs ~~increased $2.9~~decreased $0.7 million to ~~$3.3~~$2.6 million. Transaction costs in the current year period were primarily related to direct costs related to ~~our ongoing assessment of options~~community leasing activity, including lease terminations and ~~alternatives to enhance stockholder value.~~modifications. Transaction costs in the prior year period were primarily related to ~~direct costs related~~our assessment of options and alternatives to enhance stockholder value and community disposition activity.

Facility Lease Expense

Facility lease expense decreased ~~$8.0~~$2.7 million, or ~~8.6%~~3.2%, primarily due to lease termination activity since the beginning of the prior year period.

Depreciation and Amortization

Depreciation and amortization expense decreased ~~$12.5~~$4.8 million, or ~~9.4%~~3.9%, primarily due to disposition activity, through sales and lease terminations, since the beginning of the prior year period.

Goodwill and Asset Impairment

During the ~~three months ended June 30, 2017,~~current year period, we recorded $16.1 million of non-cash impairment charges. The impairment charges primarily consisted of ~~$1.6~~a $9.2 million decrease in the estimated selling prices of assets held for sale and $6.9 million of property, plant and equipment and leasehold intangibles for certain communities, primarily in the Assisted Living segment. Asset impairment expense in the prior year period was primarily related to property damage at certain communities and the cancellation of certain community expansion and redevelopment projects. ~~Asset impairment expense in the prior year period was primarily related to decreases in the estimated selling price of assets held for sale during the prior year period.~~

Loss on Facility Lease Termination and Modification, Net

~~A loss~~Loss on facility lease termination and modification, net increased $140.1 million primarily due to a $125.7 million loss on the restructuring of ~~$6.4~~community leases with Ventas, a $22.6 million ~~was recognized during the three months ended June 30, 2017 for~~loss on lease termination activity ~~during the period.~~with Welltower, partially offset by a $1.9 million gain on lease termination activity with HCP.

Costs Incurred on Behalf of Managed Communities

Costs incurred on behalf of managed communities increased ~~$43.9~~$12.2 million, or ~~23.6%~~5.3%, primarily due primarily due to ~~our entry into management agreements~~the impact of the adoption of ASU 2014-09, Revenue from Contracts with Customers on January 1, 2018 under the ~~Blackstone Venture.~~modified retrospective approach. The impact to revenue for reimbursed costs incurred on behalf of managed communities and reimbursed costs incurred on behalf of managed communities as a result of applying ASC 606 was an increase of $11.3 million for the three months ended June 30, 2018, respectively. See Note 2 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information about ASU 2014-09.

Interest Expense

Interest expense decreased by ~~$20.1~~$2.6 million, or ~~20.8%~~3.4%, primarily due to capital and financing lease termination activity ~~and the repayment of long-term debt and our secured credit facility~~ since the beginning of the prior year period.

Equity in ~~Earnings (Loss)~~Loss of Unconsolidated Ventures

Equity in ~~earnings (loss)~~loss of unconsolidated ventures decreased by ~~$4.9~~$3.2 million over the prior year ~~period. Equity~~period primarily due to the sale of investments in ~~loss~~unconsolidated ventures.

Gain (Loss) on Sale of Assets, Net

Gain (loss) on sale of assets, net increased $23.9 million, primarily due to a $16.9 million gain on sale of our investments in unconsolidated ventures and a $6.5 million gain on sale of ~~$4.6 million in~~three communities during the current year ~~period includes losses for the Blackstone Venture, which was formed subsequent to the prior year~~ period.

Income Taxes

The difference between ~~our~~the statutory tax rate and the Company's effective tax rates for the three months ended June 30, 2018 and June 30, 2017 reflects a decrease in the Company's federal statutory tax rate from 35% to 21% as a result of the Tax Act and ~~2016 was due to an increase~~a

decrease in the valuation allowance ~~against our deferred tax assets during the quarter ended June 30, 2017,~~recorded in 2018 as compared to 2017. These decreases were offset by the ~~tax impact~~elimination of deductibility for qualified performance-based compensation of covered employees in 2018 as a result of the ~~non-deductible write-off of goodwill that occurred in the quarter ended June 30, 2016.~~Tax Act. We recorded an aggregate deferred federal, state and local tax benefit of ~~$18.2~~$46.4 million as a result of the operating loss for the three months ended June 30, ~~2017,~~2018, which was offset by an increase in the valuation allowance of ~~$15.2~~$30.3 million. The change in the valuation allowance for the three months ended June 30, 2018 is the result of the reversal of future tax liabilities offset by future tax deductions. We evaluate our deferred tax assets each quarter to determine if a valuation allowance is required based on whether it is more likely than not that some portion of the deferred tax asset would not be realized. Our valuation allowance as of June 30, ~~2017~~2018 and December 31, ~~2016~~2017 was ~~$424.9~~$391.0 million and ~~$264.3~~$336.1 million, respectively. As described in Note 4 to the consolidated financial statements, we recorded a significant increase to the valuation allowance in connection with the transactions related to the formation of the Blackstone Venture. We do not expect that we will become a federal cash taxpayer until 2021, at the earliest.

We recorded interest charges related to our tax contingency reserve for cash tax positions for the three months ended June 30, ~~2017~~2018 and ~~2016~~June 30, 2017 which are included in provision for income tax for the period. Tax returns for years ~~2012~~2013 through ~~2015~~2016 are subject to future examination by tax authorities. In addition, the net operating losses from prior years are subject to adjustment under examination.

Comparison of Six Months Ended June 30, 2018 and 2017 ~~to June 30, 2016~~

During the three months ended March 31, 2017, one community moved from the CCRCs-Rental segment to the Retirement Centers segment to more accurately reflect the underlying product offering of the community in the current period given changes to the community. The movement did not change our reportable segments, but it did impact the revenues, expenses and operating data reported within the two segments. Revenue, expenses and operating data for the six months ended June 30, 2016 have not been recast.

~~As of June 30, 2017 our total operations included 1,039 communities with a capacity to serve 102,310 residents.~~

(dollars in thousands, except Total RevPAR, RevPAR and RevPOR) Six Months Ended
June 30,
2017 2016
Increase
(Decrease)

% Increase
(Decrease)
Statement of Operations Data:
Revenue
Resident fees
Retirement Centers $ 334,868
$ 339,416
$ (4,548 ) (1.3 )%
Assisted Living 1,137,967
1,230,287
(92,320 ) (7.5 )%
CCRCs-Rental 256,000
300,485
(44,485 ) (14.8 )%
Brookdale Ancillary Services 222,162
245,528
(23,366 ) (9.5 )%
Total resident fees 1,950,997
2,115,716
(164,719 ) (7.8 )%
Management services ⁽¹⁾
452,241
406,270
45,971
11.3 %
Total revenue 2,403,238
2,521,986
(118,748 ) (4.7 )%
Expense

Facility operating expense

Retirement Centers 193,569
190,213
3,356
1.8 %
Assisted Living 733,607
775,392
(41,785 ) (5.4 )%
CCRCs-Rental 196,341
231,422
(35,081 ) (15.2 )%
Brookdale Ancillary Services 193,430
211,978
(18,548 ) (8.7 )%
Total facility operating expense 1,316,947
1,409,005
(92,058 ) (6.5 )%
General and administrative expense 132,650
183,316
(50,666 ) (27.6 )%
Transaction costs 10,932
1,291
9,641
746.8 %
Facility lease expense 173,497
189,371
(15,874 ) (8.4 )%
Depreciation and amortization 248,374
260,531
(12,157 ) (4.7 )%
Asset impairment 22,265
7,527
14,738
195.8 %
Loss of facility lease termination 6,368
—
6,368
NM
Costs incurred on behalf of managed communities 413,905
371,304
42,601
11.5 %
Total operating expense 2,324,938
2,422,345
(97,407 ) (4.0 )%
Income from operations 78,300
99,641
(21,341 ) (21.4 )%
Interest income 1,435
1,430
5
0.3 %
Interest expense (169,545 ) (193,507 ) (23,962 ) (12.4 )%
Debt modification and extinguishment costs (754 ) (1,296 ) (542 ) (41.8 )%
Equity in (loss) earnings of unconsolidated ventures (3,589 ) 1,356
(4,945 ) (364.7 )%
(Loss) gain on sale of assets, net (1,150 ) 2,551
(3,701 ) (145.1 )%
Other non-operating income 3,898
7,305
(3,407 ) (46.6 )%
Income (loss) before income taxes (91,405 ) (82,520 ) 8,885
10.8 %
Provision for income taxes (81,293 ) (1,788 ) 79,505
NM
Net income (loss) (172,698 ) (84,308 ) 88,390
104.8 %
Net (income) loss attributable to noncontrolling interest 107
83
24
28.9 %
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders $ (172,591 ) $ (84,225 ) $ 88,414
105.0 %

As of June 30, 2018 our total operations included 988 communities with a capacity to serve approximately 95,000 residents.

Six Months Ended
June 30,
2017 2016
Increase
(Decrease)

% Increase
(Decrease)
Selected Operating and Other Data:
Total number of communities (period end) 1,039
1,114
(75 ) (6.7 )%
Total units operated ⁽²⁾

Period end 101,717
106,751
(5,034 ) (4.7 )%
Weighted average 102,379
107,344
(4,965 ) (4.6 )%
Owned/leased communities units ⁽²⁾

Period end 70,263
80,519
(10,256 ) (12.7 )%
Weighted average 73,848
80,820
(6,972 ) (8.6 )%
Total RevPAR ⁽³⁾
$ 4,399
$ 4,359
$ 40
0.9 %
RevPAR ⁽⁴⁾
$ 3,897
$ 3,853
$ 44
1.1 %
Owned/leased communities occupancy rate (weighted average) 84.9 % 86.0 % (1.1 )% (1.3 )%
RevPOR ⁽⁵⁾
$ 4,589
$ 4,481
$ 108
2.4 %

Selected Segment Operating and Other Data:

Retirement Centers

Number of communities (period end) 86
95
(9 ) (9.5 )%
Total units ⁽²⁾

Period end 16,071
17,095
(1,024 ) (6.0 )%
Weighted average 16,590
17,095
(505 ) (3.0 )%
RevPAR ⁽⁴⁾
$ 3,364
$ 3,309
$ 55
1.7 %
Occupancy rate (weighted average) 87.6 % 88.9 % (1.3 )% (1.5 )%
RevPOR ⁽⁵⁾
$ 3,839
$ 3,721
$ 118
3.2 %
Assisted Living

Number of communities (period end) 713
818
(105 ) (12.8 )%
Total units ⁽²⁾

Period end 46,999
53,459
(6,460 ) (12.1 )%
Weighted average 48,893
53,516
(4,623 ) (8.6 )%
RevPAR ⁽⁴⁾
$ 3,879
$ 3,832
$ 47
1.2 %
Occupancy rate (weighted average) 84.3 % 85.4 % (1.1 )% (1.3 )%
RevPOR ⁽⁵⁾
$ 4,601
$ 4,485
$ 116
2.6 %
CCRCs-Rental

Number of communities (period end) 30
43
(13 ) (30.2 )%
Total units ⁽²⁾

Period end 7,193
9,965
(2,772 ) (27.8 )%
Weighted average 8,365
10,209
(1,844 ) (18.1 )%
RevPAR ⁽⁴⁾
$ 5,060
$ 4,874
$ 186
3.8 %
Occupancy rate (weighted average) 83.3 % 84.0 % (0.7 )% (0.8 )%
RevPOR ⁽⁵⁾
$ 6,078
$ 5,801
$ 277
4.8 %
Management Services

Number of communities (period end) 210
158
52
32.9 %
Total units ⁽²⁾

Period end 31,454
26,232
5,222
19.9 %
Weighted average 28,531
26,524
2,007
7.6 %
Occupancy rate (weighted average) 85.5 % 86.9 % (1.4 )% (1.6 )%



(dollars in thousands, except Total RevPAR, RevPAR and RevPOR)	Six Months Ended June 30,						Increase (Decrease)
	2018			2017			Amount			Percent ⁽⁶⁾
Statement of Operations Data:
Revenue
Resident fees
Retirement Centers	$	317,690		$	334,868		$	(17,178	)	(5.1	)%
Assisted Living	1,054,307			1,137,967			(83,660		)	(7.4	)%
CCRCs-Rental	209,865			256,000			(46,135		)	(18.0	)%
Brookdale Ancillary Services	220,373			222,162			(1,789		)	(0.8	)%
Total resident fees	1,802,235			1,950,997			(148,762		)	(7.6	)%
Management services ⁽¹⁾	540,199			452,241			87,958			19.4	%
Total revenue	2,342,434			2,403,238			(60,804		)	(2.5	)%
Expense
Facility operating expense
Retirement Centers	188,134			193,569			(5,435		)	(2.8	)%
Assisted Living	708,032			733,607			(25,575		)	(3.5	)%
CCRCs-Rental	161,383			196,341			(34,958		)	(17.8	)%
Brookdale Ancillary Services	201,852			193,430			8,422			4.4	%
Total facility operating expense	1,259,401			1,316,947			(57,546		)	(4.4	)%
General and administrative expense	137,024			132,650			4,374			3.3	%
Transaction costs	7,318			10,932			(3,614		)	(33.1	)%
Facility lease expense	162,360			173,497			(11,137		)	(6.4	)%
Depreciation and amortization	230,371			248,374			(18,003		)	(7.2	)%
Goodwill and asset impairment	446,466			22,265			424,201			NM
Loss on facility lease termination and modification, net	146,467			6,368			140,099			NM
Costs incurred on behalf of managed communities	504,447			413,905			90,542			21.9	%
Total operating expense	2,893,854			2,324,938			568,916			24.5	%
Income (loss) from operations	(551,420		)	78,300			(629,720		)	NM
Interest income	5,924			1,435			4,489			NM
Interest expense	(146,441		)	(169,545		)	(23,104		)	(13.6	)%
Debt modification and extinguishment costs	(44		)	(754		)	(710		)	(94.2	)%
Equity in loss of unconsolidated ventures	(5,567		)	(3,589		)	1,978			55.1	%
Gain (loss) on sale of assets, net	66,753			(1,150		)	67,903			NM
Other non-operating income	8,091			3,898			4,193			107.6	%
Income (loss) before income taxes	(622,704		)	(91,405		)	531,299			NM
Provision for income taxes	(39		)	(81,293		)	81,254			100.0	%
Net income (loss)	(622,743		)	(172,698		)	450,045			NM
Net (income) loss attributable to noncontrolling interest	67			107			(40		)	(37.4	)%
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders	$	(622,676	)	$	(172,591	)	$	450,085		NM

Brookdale Ancillary Services

Outpatient Therapy treatment codes 384,471
986,181
(601,710 ) (61.0 )%
Home Health average daily census 15,094
15,612
(518 ) (3.3 )%
Hospice average daily census 977
696
281
40.4 %



	Six Months Ended June 30,						Increase (Decrease)
	2018			2017			Amount				Percent ⁽⁶⁾
Selected Operating and Other Data:
Total number of communities (period end)	988			1,039			(51		)		(4.9	)%
Total units operated ⁽²⁾
Period end	94,885			101,717			(6,832		)		(6.7	)%
Weighted average	98,510			102,379			(3,869		)		(3.8	)%
Owned/leased communities units ⁽²⁾
Period end	61,709			70,263			(8,554		)		(12.2	)%
Weighted average	66,450			73,848			(7,398		)		(10.0	)%
Total RevPAR ⁽³⁾	$	4,518		$	4,399		$	119			2.7	%
RevPAR ⁽⁴⁾	$	3,965		$	3,897		$	68			1.7	%
Owned/leased communities occupancy rate (weighted average)	84.3		%	84.9		%	(0.6		)%		(0.7	)%
RevPOR ⁽⁵⁾	$	4,705		$	4,589		$	116			2.5	%
Selected Segment Operating and Other Data:
Retirement Centers
Number of communities (period end)	75			86			(11		)		(12.8	)%
Total units ⁽²⁾
Period end	13,559			16,071			(2,512		)		(15.6	)%
Weighted average	15,064			16,590			(1,526		)		(9.2	)%
RevPAR ⁽⁴⁾	$	3,515		$	3,364		$	151			4.5	%
Occupancy rate (weighted average)	87.9		%	87.6		%	0.3		%		0.3	%
RevPOR ⁽⁵⁾	$	3,998		$	3,839		$	159			4.1	%
Assisted Living
Number of communities (period end)	645			713			(68		)		(9.5	)%
Total units ⁽²⁾
Period end	41,266			46,999			(5,733		)	��	(12.2	)%
Weighted average	44,588			48,893			(4,305		)		(8.8	)%
RevPAR ⁽⁴⁾	$	3,941		$	3,879		$	62			1.6	%
Occupancy rate (weighted average)	83.2		%	84.3		%	(1.1		)%		(1.3	)%
RevPOR ⁽⁵⁾	$	4,738		$	4,601		$	137			3.0	%
CCRCs-Rental
Number of communities (period end)	28			30			(2		)		(6.7	)%
Total units ⁽²⁾
Period end	6,884			7,193			(309		)		(4.3	)%
Weighted average	6,798			8,365			(1,567		)		(18.7	)%
RevPAR ⁽⁴⁾	$	5,125		$	5,060		$	65			1.3	%
Occupancy rate (weighted average)	83.5		%	83.3		%	0.2		%		0.2	%
RevPOR ⁽⁵⁾	$	6,137		$	6,078		$	59			1.0	%
Management Services
Number of communities (period end)	240			210			30				14.3	%
Total units ⁽²⁾
Period end	33,176			31,454			1,722				5.5	%
Weighted average	32,060			28,531			3,529				12.4	%
Occupancy rate (weighted average)	83.9		%	85.5		%	(1.6		)%		(1.9	)%



Brookdale Ancillary Services
Home Health average daily census	15,367	15,094	273		1.8	%
Hospice average daily census	1,319	977	342		35.0	%
Outpatient Therapy treatment codes	343,325	384,471	(41,146	)	(10.7	)%


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


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

(3)

(4)

(5)


(6)	NM - Not meaningful

Resident Fees

Resident fee revenue decreased ~~$164.7~~$148.8 million, or ~~7.8%~~7.6%, compared to the prior year period primarily due to disposition activity, through sales and lease terminations of 158 communities, since the beginning of the prior year period. Weighted average occupancy decreased ~~130~~110 basis points at the ~~812~~758 communities we owned or leased during both full periods, ~~primarily due to~~which reflects the impact of new competition in our markets. ~~Additionally, Brookdale Ancillary Services segment revenue decreased $23.4 million, or 9.5%, primarily due to decreases in volume for outpatient therapy services and home health services.~~ The ~~130~~ communities disposed of subsequent to the beginning of the prior year period ~~(including the 62 communities for which the financial results were deconsolidated from our financial statements prospectively upon formation of the Blackstone Venture on March 29, 2017)~~ generated ~~$82.3~~$109.1 million of revenue during the current year period compared to ~~$236.0~~$259.7 million of revenue in the prior year period. The decrease in resident fee revenue was partially offset by a ~~2.0%~~1.0% increase in RevPOR at the ~~812~~758 communities we owned or operated during both full periods compared to the prior year period. Total RevPAR for the consolidated portfolio also increased by ~~0.9%~~2.7% compared to the prior year period.

Retirement Centers segment revenue decreased ~~$4.5~~$17.2 million, or ~~1.3%~~5.1%, primarily due to the impact of dispositions of ~~ten~~20 communities since the beginning of the prior year period, which generated ~~$8.1~~$32.3 million of revenue during the current year period compared to ~~$20.7~~$54.7 million of revenue in the prior year ~~period. This decrease was partially offset by the impact of the reclassification of one community from the CCRCs-Rental segment into this segment during the current~~ period. Retirement Centers segment revenue at the communities we operated during both full periods was ~~$300.8~~$287.6 million ~~for~~during the ~~six months ended June 30, 2017,~~current year period, an increase of ~~$2.7~~$0.6 million, or ~~0.9%~~0.2%, over the prior year period, primarily due to a ~~2.2%~~0.4% increase in RevPOR ~~at these communities, partially offset by a 120 basis point decrease in occupancy~~ at these communities.

Assisted Living segment revenue decreased ~~$92.3~~$83.7 million, or ~~7.5%~~7.4%, primarily due to the impact of dispositions of ~~107~~125 communities since the beginning of the prior year period, which generated ~~$38.8~~$74.8 million of revenue during the current year period compared to ~~$134.6~~$155.5 million of revenue in the prior year period. Assisted Living segment revenue at the communities we operated during both full periods was ~~$1,069.3~~$1,008.0 million ~~for~~during the ~~six months ended June 30, 2017,~~current year period, a decrease of ~~$1.1~~$5.4 million, or ~~0.1%~~0.5%, over the prior year period, primarily due to a ~~150~~160 basis point decrease in weighted average occupancy at these communities, partially offset by a ~~1.8%~~1.3% increase in RevPOR at these communities.

CCRCs-Rental segment revenue decreased ~~$44.5~~$46.1 million, or ~~14.8%~~18.0%, primarily due to the impact of dispositions of 13 communities since the beginning of the prior year period, which generated ~~$35.4~~$1.9 million of revenue during the current year period compared

to ~~$80.7~~$49.5 million of revenue in ~~the prior year period. Additionally, revenue decreased due to the impact of the reclassification of one community out of this segment and into the Retirement Centers segment subsequent to~~ the prior year period. CCRCs-Rental segment revenue at the communities we operated during both full periods was ~~$214.9~~$183.6 million ~~for~~during the ~~six months ended June 30, 2017, an increase~~current year period, a decrease of ~~$3.3~~$1.2 million, or ~~1.5%~~0.7%, over the prior year period, primarily due to a ~~2.2% increase in RevPOR at these communities, partially offset by a 70~~60 basis point decrease in weighted average occupancy and a 0.5% decrease in RevPAR at these communities.

Brookdale Ancillary Services segment revenue decreased ~~$23.4~~$1.8 million, or ~~9.5%~~0.8%, primarily due to ~~decreases~~a decline in home health revenue, which was partially offset by an increase in volume for ~~outpatient therapy services and home health~~hospice services. During the three months ended December 31, 2016, we significantly reduced the number of outpatient therapy clinics located in our communities as lower reimbursement rates and lower utilization made the business less attractive. For home health in ~~2017,~~2018, CMS has implemented a net ~~0.7%~~0.4% reimbursement reduction, consisting of a ~~2.8%~~1.0% market basket inflation increase, less ~~a 0.3% productivity reduction, a 2.3% rebasing adjustment, and~~ a 0.9% reduction to account for industry wide case-mix ~~growth.~~growth, and the sunset of the rural add-on provision. As a result, we expect our home health reimbursement ~~has been~~to be reduced by approximately ~~3.0%~~0.8% in 2018 compared to ~~the prior year period, which is consistent with our expectations for the remainder of~~ 2017. ~~These decreases were partially offset by an increase in volume for hospice services.~~

Management Services Revenue

Management Services segment revenue, including management fees and reimbursed costs incurred on behalf of managed communities, increased ~~$46.0~~$88.0 million, or ~~11.3%~~19.4%, over the prior year period primarily due to our entry into management agreements with the Blackstone ~~Venture.~~Venture on March 29, 2017. Management fees of $35.8 million for 2018 include $2.3 million of management fees attributable to communities for which our management agreements were terminated in 2018 and $6.5 million of management fees attributable to communities for which we expect the terminations of our management agreements to occur during the remainder of 2018.

Facility Operating Expense

Facility operating expense decreased ~~$92.1~~$57.5 million, or ~~6.5%~~4.4%, over the prior year ~~period~~period. The decrease in facility operating expense is primarily due to disposition activity, through sales and lease terminations, of ~~130~~158 communities since the beginning of the prior year period, which incurred ~~$62.9~~$70.2 million of facility operating expenses during the ~~six months ended June 30, 2017~~current year period compared to ~~$177.0~~$183.9 million of facility operating expenses in the six months ended June 30, 2016. Additionally, Brookdale Ancillary Services segment facility operating expenses decreased $18.5 million, or 8.7%, primarily due to decreases in volume for outpatient therapy services and home health services.prior year period. These decreases were partially offset by an increase in ~~salaries and wages arising from wage rate increases~~labor expense at the communities we operated during both full ~~period~~periods, reflecting the impact of our investment in salaries and ~~an $11.2 million increase in insurance expense related to positive changes in~~benefits and a tight labor market during the ~~six months ended June 30, 2016 to estimates in general liability and professional liability and workers compensation expenses.~~current year period.

Retirement Centers segment facility operating expenses ~~increased $3.4~~decreased $5.4 million, or ~~1.8%~~2.8%, primarily ~~driven by an increase in salaries and wages arising from wage rate increases and~~due to the impact of ~~the reclassification of one community from the CCRCs-Rental segment into this segment during the current year period. The increase was partially offset by~~ dispositions of ~~ten~~20 communities since the beginning of the prior year period, which incurred ~~$5.0~~$19.4 million of expenses during the current year period compared to ~~$12.1~~$32.9 million in the prior year period. This decrease was partially offset by an increase in labor expense at the communities we operated during both full periods. Retirement Centers segment facility operating expenses at the communities we operated during both full periods were ~~$172.0~~$167.5 million, an increase of ~~$5.8~~$6.1 million, or ~~3.5%~~3.8%, over the prior year period.

Assisted Living segment facility operating expenses decreased ~~$41.8~~$25.6 million, or ~~5.4%~~3.5%, primarily driven by the impact of dispositions of ~~107~~125 communities since the beginning of the prior year period, which incurred ~~$28.8~~$48.6 million of expenses during the current year period compared to ~~$98.3~~$108.2 million in the prior year period. This decrease was partially offset by an increase in ~~salaries and wages arising from wage rate increases~~labor expense at the communities we operated during both full periods and a $10.8 million increase in insurance expense related to positive changes in the six months ended June 30, 2016 to estimates in general liability and professional liability and workers compensation expenses.periods. Assisted Living segment facility operating expenses at the communities we operated during both full periods were ~~$683.4~~$673.1 million, an increase of ~~$20.2~~$32.7 million, or ~~3.0%~~5.1%, over the prior year period.

CCRCs-Rental segment facility operating expenses decreased ~~$35.1~~$35.0 million, or ~~15.2%~~17.8%, primarily driven by the impact of dispositions of 13 communities since the beginning of the prior year period, which incurred ~~$29.1~~$2.3 million of expenses during the current year period compared to ~~$66.6~~$42.8 million in the prior year period. ~~Additionally, facility operating expenses decreased due to~~This decrease was partially offset by an increase in labor expense at the ~~impact of the reclassification of one community out of this segment and into the Retirement Centers segment~~communities we operated during ~~the current year period.~~both full periods. CCRCs-Rental segment facility operating expenses at the communities we operated during both full periods were ~~$161.4~~$142.2 million, an increase of ~~$2.2~~$3.3 million, or ~~1.4%~~2.4%, over the prior year period.

Brookdale Ancillary Services segment operating expenses ~~decreased $18.5~~increased $8.4 million, or ~~8.7%~~4.4%, primarily due to ~~decreases~~an increase in ~~volume for outpatient therapy services~~labor costs arising from wage rate increases and ~~home health~~the expansion of our hospice services. During the three months ended December 31, 2016, we significantly reduced the number of outpatient therapy clinics located in our communities as lower reimbursement rates and lower utilization made the business less attractive.

General and Administrative Expense

General and administrative expense ~~decreased $50.7~~increased $4.4 million, or ~~27.6%~~3.3%, over the prior year period primarily due to a $35.1 million decrease in integration, transaction-related and strategic project costs. Integration, transaction-related and strategic project costs were $0.7 million during the current period compared to $35.8 million in the prior year period. Integration costs for 2016 include transitionincreased costs associated with organizational restructuring, ~~(such as~~including severance and retention ~~payments and recruiting expenses), third party consulting expenses directly~~costs related to our efforts to reduce general and administrative expense and senior leadership changes. During the ~~integration of acquired communities (in areas such as cost savings~~current year period, general and synergy realization, branding and technology and systems work), and internal costs such as training, travel and labor, reflecting time spent by Company personnel on integration activities and projects. Transaction-related costs for 2016 include third party costs directly related to acquisition and disposition activity, community financing and leasing activity and corporate capital structure assessment activities (including shareholder relations advisory matters), and are primarily comprised of legal, finance, consulting, professional fees and other third party costs. Strategic project costs for 2016 include costs associated with strategic projects related to refining our strategy, building out enterprise-wide capabilities (including EMR roll-out project) and reducingadministrative expense included severance costs and ~~achieving synergies by capitalizing on scale. Additionally, a reduction in corporate associate headcount resulted in decreased salaries~~retention costs of $11.1 million and ~~wage expense for the six months ended June 30, 2017.~~$3.5 million, respectively.

Transaction Costs

Transaction costs ~~increased $9.6~~decreased $3.6 million to ~~$10.9~~$7.3 million. Transaction costs in the current year period were primarily related to direct costs related to ~~the formation of the Blackstone Venture and~~ our ~~ongoing~~ assessment of options and alternatives to enhance stockholder ~~value.~~value and direct costs related to community leasing activity, including lease terminations and modifications. Transaction costs in the prior year period were primarily related

to direct costs related to the formation of the Blackstone Venture, our assessment of options and alternatives to enhance stockholder value, and community disposition activity.

Facility Lease Expense

Facility lease expense decreased ~~$15.9~~$11.1 million, or ~~8.4%~~6.4%, primarily due to lease termination activity since the beginning of the prior year period.

Depreciation and Amortization

Depreciation and amortization expense decreased ~~$12.2~~$18.0 million, or ~~4.7%~~7.2%, primarily due to disposition activity, through sales and lease terminations, since the beginning of the prior year period.

Goodwill and Asset Impairment

During the ~~six months ended June 30, 2017,~~current year period, we recorded ~~charges of $22.3 million primarily related to the formation of the Blackstone Venture and termination of leases related thereto. Additionally, we recorded $2.6~~$446.5 million of ~~other asset~~non-cash impairment charges. The impairment charges primarily consisted of $351.7 million of goodwill within the Assisted Living segment, $47.7 million of property, plant and equipment and leasehold intangibles for certain communities, primarily in the Assisted Living segment, $33.4 million for our investments in unconsolidated ventures, and $12.0 million for assets held for sale. Asset impairment expense in the prior year period was primarily related to property damage at certain communities and the cancellation of certain community expansion and redevelopment projects. ~~Asset~~

During 2018, we identified qualitative indicators of impairment ~~expense~~of our goodwill, including a significant decline in our stock price and market capitalization for a sustained period during the ~~prior year period was primarily related to decreases in~~three months ended March 31, 2018. As a result, we performed an interim quantitative goodwill impairment test as of March 31, 2018, which included a comparison of the estimated ~~selling price~~fair value of each reporting unit to which the goodwill has been assigned with the reporting unit's carrying value. In estimating the fair value of the reporting units for purposes of the quantitative goodwill impairment test, we utilized an income approach, which included future cash flow projections that are developed internally. Based on the results of the quantitative goodwill impairment test, we determined that the carrying value of our Assisted Living segment exceeded its estimated fair value by more than the $351.7 million carrying value as of March 31, 2018. As a result, we recorded a non-cash impairment charge of $351.7 million to goodwill within the Assisted Living segment for the three months ended March 31, 2018.

During the six months ended June 30, 2018, we evaluated property, plant and equipment and leasehold intangibles for impairment and identified properties with a carrying value of the assets ~~held~~in excess of the estimated future undiscounted net cash flows expected to be generated by the assets, primarily due to an expectation that certain communities will be disposed of prior to their previously determined useful lives. We compared the estimated fair value of the assets to their carrying value for ~~sale during~~these identified properties and recorded an impairment charge for the ~~prior year period.~~excess of carrying value over fair value. As a result, we recorded property, plant and equipment and leasehold intangibles non-cash impairment charges of $47.7 million for the six months ended June 30, 2018, including $41.8 million within the Assisted Living segment.

During the three months ended March 31, 2018, we identified indicators of impairment for our investments in unconsolidated ventures. We compared the estimated fair value of investments in unconsolidated ventures to their carrying value for these identified investments and recorded a $33.4 million impairment charge for the excess of carrying value over fair value.

Estimating the fair values of our goodwill and other assets requires management to use significant estimates, assumptions and judgments regarding future circumstances and events that are unpredictable and inherently uncertain. Future circumstances and events may result in outcomes that are different from these estimates, assumptions and judgments, which could result in future impairments to our goodwill and other assets. See Note 5 to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information about our evaluations of goodwill and other assets for impairment and the related impairment charges.

Loss on Facility Lease Termination and Modification, Net

~~A loss~~Loss on facility lease termination and modification, net increased $140.1 million primarily due to a $125.7 million loss on the restructuring of ~~$6.4~~community leases with Ventas, a $22.3 million ~~was recognized during the six months ended June 30, 2017 for~~loss on lease termination activity ~~during the period.~~with Welltower, partially offset by a $1.9 million gain on lease termination activity with HCP.

Costs Incurred on Behalf of Managed Communities

Costs incurred on behalf of managed communities increased ~~$42.6~~$90.5 million, or ~~11.5%~~21.9%, primarily due to our entry into management agreements with the Blackstone ~~Venture~~Venture.

Interest Expense

Interest expense decreased by ~~$24.0~~$23.1 million, or ~~12.4%~~13.6%, primarily due to capital and financing lease termination activity ~~and the repayment of long-term debt and our secured credit facility~~ since the beginning of the prior year period.

Equity in ~~Earnings (Loss)~~Loss of Unconsolidated Ventures

Equity in ~~earnings (loss)~~loss of unconsolidated ventures ~~decreased~~increased by ~~$4.9~~$2.0 million over the prior year period. Equity in loss of unconsolidated ventures of ~~$3.6~~$5.6 million in the current year period includes losses for the Blackstone Venture, which was formed ~~subsequent~~during the prior year period.

Gain (Loss) on Sale of Assets, Net

Gain (loss) on sale of assets, net increased $67.9 million, primarily due to a $59.1 million gain on sale of our investments in unconsolidated ventures and a $8.4 million gain on sale of six communities during the ~~prior~~current year period.

Income Taxes

The difference between ~~our~~the statutory tax rate and the Company's effective tax rates for the six months ended June 30, ~~2017~~2018 and ~~2016 was primarily due to recording an additional valuation allowance against our deferred tax assets during the six months ended~~ June 30, 2017 reflects a decrease in the Company's federal statutory tax rate from 35% to 21% as a result of the Tax Act and a decrease in the valuation allowance recorded in 2018 as compared to 2017. These decreases were offset by the elimination of deductibility for qualified performance-based compensation of covered employees in 2018 as a result of the Tax Act, the negative tax ~~impact~~benefit on the vesting of restricted stock, a direct result of the Company's lower stock price in 2018, and the non-deductible write-off of ~~goodwill in 2016.~~goodwill. We recorded an aggregate deferred federal, state and local tax benefit of ~~$31.7~~$55.9 million as a result of the operating loss for the six months ended June 30, ~~2017,~~2018, which was offset by an increase in the valuation allowance of ~~$112.1 million,~~$54.9 million. The excess of ~~which $85.0 million was recorded as a~~the increase in the valuation allowance over the deferred federal, state and local benefit for the six months ended June 30, 2018 is the result of the ~~Blackstone Venture.~~reversal of future tax liabilities offset by future tax deductions. We evaluate our deferred tax assets each quarter to determine if a valuation allowance is required based on whether it is more likely than not that some portion of the deferred tax asset would not be realized. Our valuation allowance as of June 30, ~~2017~~2018 and December 31, ~~2016~~2017 was ~~$424.9~~$391.0 million and ~~$264.3~~$336.1 million, respectively. As described in Note 4 to the consolidated financial statements, we recorded a significant increase to the valuation allowance in connection with the transactions related to the formation of the Blackstone Venture. We do not expect that we will become a federal cash taxpayer until 2021, at the earliest.

We recorded interest charges related to our tax contingency reserve for cash tax positions for the six months ended June 30, ~~2017~~2018 and ~~2016~~June 30, 2017 which are included in provision for income tax for the period. Tax returns for years ~~2012~~2013 through ~~2015~~2016 are subject to future examination by tax authorities. In addition, the net operating losses from prior years are subject to adjustment under examination.

Liquidity and Capital Resources

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

Six Months Ended
June 30,
2017 2016 Increase (Decrease) % Increase (Decrease)
Net cash provided by operating activities $ 199,874
$ 177,839
$ 22,035
12.4 %
Net cash used in investing activities (261,215 ) (156,736 ) 104,479
66.7 %
Net cash used in financing activities (3,528 ) (70,079 ) (66,551 ) (95.0 )%
Net decrease in cash and cash equivalents (64,869 ) (48,976 ) 15,893
32.5 %
Cash and cash equivalents at beginning of period 216,397
88,029
128,368
145.8 %
Cash and cash equivalents at end of period $ 151,528
$ 39,053
$ 112,475
288.0 %



	Six Months Ended June 30,						Increase (Decrease)
(in thousands)	2018			2017			Amount			Percent
Net cash provided by operating activities	$	98,584		$	200,532		$	(101,948	)	(50.8	)%
Net cash provided by (used in) investing activities	11,512			(259,494		)	271,006			104.4	%
Net cash used in financing activities	(201,980		)	(4,186		)	197,794			NM
Net increase (decrease) in cash, cash equivalents and restricted cash	(91,884		)	(63,148		)	(28,736		)	(45.5	)%
Cash, cash equivalents and restricted cash at beginning of period	282,546			277,322			5,224			1.9	%
Cash, cash equivalents and restricted cash at end of period	$	190,662		$	214,174		$	(23,512	)	(11.0	)%

The ~~increase~~decrease in net cash provided by operating activities of ~~$22.0~~$101.9 million was attributable primarily to ~~a $26.0 million decrease~~cash payments to terminate community operating leases during the current year period, an increase in ~~integration, transaction, transaction-related~~facility operating expenses at the communities operated during both full periods, and ~~strategic project costs compared to the prior year period. The increase was partially offset by~~ the impact of disposition activity, through sales and lease terminations, since the beginning of the prior year period.

The ~~increase~~change in net cash ~~used in~~provided by investing activities of ~~$104.5~~$271.0 million was primarily attributable to sales of $273.3 million of marketable securities during the current year period, our contribution of $179.2 million in connection with the formation of the Blackstone ~~Venture. The increase was~~Venture during the prior year period, sales of our interest in equity method investments, and a decrease in net proceeds from the sale of assets. These changes were partially offset by ~~reduced~~increased acquisition and capital expenditure activity.

The ~~decrease~~increase in net cash used in financing activities of $197.8 million was primarily attributable to ~~a decrease~~our cash settlement of the aggregate principal amount of the $316.3 million of 2.75% convertible senior notes during June 2018, partially offset by an increase in ~~repayments of~~proceeds from debt ~~during~~compared to the ~~current~~prior year period.

Our principal sources of liquidity have historically been from:

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

cash flows from operations;

proceeds from our credit facilities;

funds generated through unconsolidated venture arrangements;

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

funds raised in the debt or equity markets; and

proceeds from the disposition of assets.

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

Our liquidity requirements have historically arisen from:

working capital;

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

debt service and lease payments;

acquisition consideration and transaction and integration costs;

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

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

purchases of common stock under our share repurchase authorizations;

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

prior to 2009, dividend payments.

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

working capital;

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

debt service and lease payments;

acquisition consideration and transaction costs;

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

~~acquisition consideration and transaction costs;~~

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

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

purchases of common stock under our share repurchase authorization; and

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

We are highly leveraged and have significant debt and lease obligations. As of June 30, ~~2017,~~2018, we have ~~three~~two principal corporate-level debt obligations: our $400.0 million secured credit facility ~~our $316.3 million 2.75% convertible senior notes due June 15, 2018,~~ and our separate unsecured letter of credit facilities providing for up to ~~$64.5~~$66.2 million of letters of credit in the aggregate. ~~The remainder~~As of June 30, 2018, 93.9%, or $3.5 billion, of our ~~indebtedness is generally comprised of approximately $3.2 billion of~~total debt obligations represent non-recourse property-level mortgage ~~financings as~~financings.

As of June 30, ~~2017.~~

~~At June 30, 2017,~~2018, we had ~~$3.6~~$3.7 billion of debt outstanding excluding capital and financing lease obligations, at a weighted-average interest rate of ~~4.9% (calculated using an imputed interest rate of 7.5% for our 2.75% convertible senior notes due June 15, 2018)~~4.8%. No balance was drawn on our secured credit facility as of June 30, ~~2017. At~~2018. As of June 30, ~~2017,~~2018, we had ~~$1.6~~$1.1 billion of capital and financing lease obligations and ~~$99.7~~$107.8 million of letters of credit had been issued under our secured credit facility and separate unsecured letter of credit facilities. For the twelve months ending June 30, ~~2018~~2019 we will be required to make approximately ~~$167.0~~$90.6 million and ~~$369.2~~$305.4 million of cash payments in connection with our existing capital and financing leases and our operating leases, respectively.

Total liquidity of ~~$546.0~~$487.0 million as of June 30, ~~2017~~2018 included ~~$151.5~~$126.6 million of unrestricted cash and cash equivalents (excluding restricted cash ~~and escrow deposits-restricted~~ and lease security deposits of ~~$62.6~~$116.4 million in the aggregate), ~~$29.8~~$20.0 million of marketable securities, and ~~$364.7~~$340.4 million of availability on our secured credit facility.

~~In June 2017,~~ We are executing on our plan to market in 2018 and sell 28 owned communities, which we obtained a $54.7 million non-recourse supplemental loan, secured by first mortgages on seven communities. The loan bears interest at a fixed rate of 4.69% and matures on March 1, 2022. Proceeds from the loan added to our liquidity.

~~In July 2017, we completed the refinancing of two existing loan portfolios secured by the non-recourse first mortgage on 22 communities. The $221.3~~believe will generate more than $250 million of proceeds, ~~from~~net of associated debt and transaction costs. However, the ~~refinancing were primarily utilized~~closings of the expected sales of assets are subject to ~~pay off $188.1 million~~our successful marketing of such assets on terms acceptable to us and ~~$13.6 million~~will be subject to the satisfaction of ~~mortgage debt maturing in April 2018 and January 2021, respectively. The mortgage facility has a 10 year term, and~~various conditions, including (where applicable) the receipt of regulatory approvals. There can be no assurance that the transactions will close or, if they do, when the actual closings will occur.

~~70%~~As of ~~the principal amount bears interest at a fixed rate of 4.81% and the remaining 30% of the principal amount bears interest at a variable rate of 30-day LIBOR plus a margin of 244 basis points.~~

At June 30, ~~2017,~~2018, we had ~~$516.6~~$185.0 million of negative working capital. Due to the nature of our business, it is not unusual to operate in the position of negative working capital because we collect revenues much more quickly, often in advance, than we are required to pay obligations, and we have historically refinanced or extended maturities of debt obligations as they become current liabilities. Our operations result in a very low level of current assets primarily stemming from our deployment of cash to pay down long-term liabilities, to fund capital expenditures, in connection with our ~~ongoing~~ portfolio optimization initiative, and to pursue strategic business development opportunities. As of June 30, ~~2017,~~2018, the current portion of long-term debt was ~~$555.7~~$250.9 million, which includes the carrying ~~amount~~value of ~~our 2.75% convertible senior notes due June 15, 2018, the carrying amount of $67.7~~$61.3 million of mortgage debt due in ~~May 2018~~January 2019 and ~~the $60.5~~$50.2 million of mortgage debt related to 1415 communities classified as held for sale as of June 30, 2017. We estimate that we will have sufficient liquidity to settle the principal amount of $316.3 million of the convertible notes in cash at maturity, though we currently anticipate obtaining additional liquidity in 2017 through refinancing of certain under-levered assets that have associated debt maturities arising in 2018 and 2023. However, there can be no assurance that any such additional financing will be available or on terms that are acceptable to us.2018.

Our capital expenditures are comprised of community-level, corporate and development capital expenditures. Community-level capital expenditures include recurring expenditures (routine maintenance of communities over $1,500 per occurrence, including for unit turnovers (subject to a $500 floor)) and community renovations, apartment upgrades and other major building infrastructure projects. Corporate and other capital expenditures include those for information technology systems and equipment, ~~and~~ the expansion of our support platform and ancillary services ~~programs.~~programs, the remediation or replacement of assets as a result of casualty losses and compliance with requirements to obtain emergency power generators at our communities. Development capital expenditures include community expansions and major community redevelopment and repositioning projects, including our Program Max initiative, and the development of new communities.

Through our Program Max initiative, we intend to expand, renovate, redevelop and reposition certain of our communities where economically advantageous. Certain of our communities may benefit from additions and expansions or from adding a new level of service for residents to meet the evolving needs of our customers. These Program Max projects include converting space from one level of care to another, reconfiguration of existing units, the addition of services that are not currently present or physical plant modifications. We currently have 10seven Program Max projects that have been approved, most of which have begun construction and are expected to generate 2387 net new units.

The following table summarizes our actual capital expenditures for the six months ended June 30, ~~2017 as well as our anticipated capital expenditures for the year ended December 31, 2017~~2018 for our consolidated ~~communities (in millions):~~business:


	Actual Six Months Ended June 30, 2017		Anticipated 2017 Range
(in millions)					Six Months Ended June 30, 2018
Community-level capital expenditures, net ⁽¹⁾	$	59.7	$	150.0 - 155.0	$	67.4
Corporate(2)	13.9			40.0 - 45.0	22.0
Non-development capital expenditures, net ⁽²⁾⁽³⁾	73.6			190.0 - 200.0	$	89.4
Development capital expenditures, net ⁽³⁾	3.8			30.0 - 40.0

Development capital expenditures, net ⁽⁴⁾					13.4
Total capital expenditures, net	$	77.4	$	220.0 - 240.0	$	102.8


(1)	~~Amount shown for the six months ended June 30, 2017 is~~Reflects the amount invested, net of lessor reimbursements of ~~$8.9~~$1.8 million. ~~Anticipated amounts shown~~

(2)

Includes $5.9 million of remediation costs at our communities resulting from Hurricanes Harvey and Irma and for ~~2017 are amounts invested or anticipated to be invested, net~~the acquisition of emergency power generators at our impacted Florida communities. Amounts exclude reimbursement from our property and casualty insurance policies of approximately ~~$10.0 million of lessor reimbursements received or anticipated to be received.~~$0.9 million.


~~(2)~~(3)	~~Amounts are~~Amount is included in Adjusted Free Cash Flow.


~~(3)~~(4)	~~Amount shown for the six months ended June 30, 2017 is~~Reflects the amount invested, net of lessor reimbursements of ~~$4.7~~$0.7 million. ~~Anticipated amounts shown for 2017 are amounts invested or anticipated to be invested, net of approximately $40.0 million to $50.0 million of lessor reimbursements anticipated to be received.~~

~~During 2017, we~~We expect our full-year 2018 non-development capital expenditures, net of lessor reimbursements, to be in the range of $170 million to $180 million, and our development capital expenditures, net of lessor reimbursements, to be approximately $40 million. Our expectations regarding full-year 2018 non-development capital expenditures include up to $25 million for remediation resulting from Hurricanes Harvey and Irma and the acquisition of emergency power generators at certain Florida communities. Following Hurricane Irma, legislation was adopted in the State of Florida in March 2018 that requires skilled nursing homes and assisted living communities in Florida to obtain generators and fuel necessary to sustain operations and maintain comfortable temperatures in the event of a power outage. Our impacted Florida communities must comply with the requirements by January 1, 2019, subject to extension in certain circumstances. We anticipate that our 2018 capital expenditures will be funded from cash on hand, cash flows from operations, ~~lessor reimbursements in the amount of approximately $50.0 million to $60.0 million, amounts drawn on construction loans~~ and, if necessary, amounts drawn on our secured credit facility.

Execution on our ~~portfolio optimization~~strategy and ~~growth initiatives will require additional capital, particularly if we were to accelerate our~~any identified lease restructuring, development ~~and~~or acquisition ~~plans.~~opportunities may require additional capital. We expect to continue to assess our financing alternatives periodically and access the capital markets opportunistically. If our existing resources are insufficient to satisfy our liquidity requirements, 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 percentage ownership of our existing stockholders, and we cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to us, if at all. Any newly issued equity securities may have rights, preferences or privileges senior to those of our common stock. If we are unable to raise additional funds or obtain them on terms acceptable to us, we may have to forego, delay or abandon ~~some~~lease restructuring, development or ~~all of our plans to restructure leases and grow our business.~~acquisition opportunities that we identify.

We currently estimate that our existing cash flows from operations, together with cash on hand, amounts available under our secured credit facility and ~~to a lesser extent,~~ proceeds from anticipated dispositions of owned communities and financings and refinancings of various assets, will be sufficient to fund our liquidity needs for at least the next 12 months, assuming a relatively stable macroeconomic environment.

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

Credit Facilities

On December 19, 2014, we entered into a Fourth Amended and Restated Credit Agreement with General Electric Capital Corporation (which has since assigned its interest to Capital One Financial Corporation), as administrative agent, lender and swingline lender, and the other lenders from time to time parties thereto. The agreement currently provides for a total commitment amount of $400.0 million, comprised of a $400.0 million revolving credit facility (with a $50.0 million sublimit for letters of credit and a $50.0 million swingline feature to permit same day borrowing) and an option to increase the revolving credit facility by an additional $250.0 million, subject to obtaining commitments for the amount of such increase from acceptable lenders. The maturity date is January 3, 2020 and amounts drawn under the facility bear interest at 90-day LIBOR plus an applicable margin from a range of 2.50% to 3.50%. The applicable margin varies based on the percentage of the total commitment drawn, with a 2.50% margin at utilization equal to or lower than 35%, a 3.25% margin at utilization greater than 35% but less than or equal to 50%, and a 3.50% margin at utilization greater than 50%. The quarterly commitment fee on the unused portion of the facility is 0.25% per annum when the outstanding amount of obligations (including revolving credit, swingline and term loans and letter of credit obligations) is greater than or equal to 50% of the total commitment amount or 0.35% per annum when such outstanding amount is less than 50% of the total commitment amount.

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

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

The 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 agreement and all amounts owing under the agreement becoming immediately due and payable and/or could trigger cross-default provisions in our other outstanding debt and lease documents.

As of June 30, ~~2017,~~2018, no borrowings were outstanding on the revolving credit facility ~~$35.3~~and $41.7 million of letters of credit were outstanding, ~~and we had $364.7~~resulting in $340.4 million of availability on our secured credit facility. We also had separate unsecured letter of credit facilities

of up to ~~$64.5~~$66.2 million in the aggregate as of June 30, ~~2017.~~2018. Letters of credit totaling ~~$64.4~~$66.1 million had been issued under these separate facilities as of that date.

~~As of June 30, 2017, we are in compliance with the financial covenants of our outstanding debt agreements.~~

Long-Term Leases

As of June 30, ~~2017,~~2018, we have ~~469~~385 communities operated under long-term ~~leases.~~leases (258 operating leases and 127 capital and financing leases). The substantial majority of ~~the Company's~~our lease arrangements are structured as master leases. Under a master lease, numerous communities are leased through an indivisible lease. The Company typically guarantees ~~its~~the performance and lease payment obligations of its subsidiary lessees under master leases. Due to the ~~lease payments under~~nature of such master leases, it is difficult to restructure the ~~master lease.~~

~~The community~~composition of such leased portfolios or economic terms of the leases ~~contain customary terms, which may include assignment and change~~without the consent of control restrictions, maintenance and capital expenditure obligations, termination provisions and financial performance covenants, such as net worth and minimum lease coverage ratios. Failure to comply with these covenants could result in an event of default and/or trigger cross-default provisions in our outstanding debt and other lease documents. Further,the applicable landlord. In addition, an event of default related to an individual property or limited number of properties within a master lease portfolio ~~would~~may result in a default on the entire master lease portfolio and could trigger cross-default provisions in our other outstanding debt and lease documents. Certain leases contain cure provisions generally requiring the posting of an additional lease security deposit if the required covenant is not met.portfolio.

The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or tied to changes in leased property revenue or the consumer price index. ~~The Company is~~We are responsible for all operating costs, including repairs, property taxes and insurance. The initial lease terms primarily vary from 10 to 20 years and generally include renewal options ranging from 5 to 3020 years. The remaining base lease terms vary from less than one year to 1615 years and generally provide for renewal or extension options and in some instances, purchase options.

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

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

For the three months ended June 30, ~~2017,~~2018, our cash lease payments for our capital and financing leases and our operating leases were ~~$42.7~~$38.1 million and ~~$90.6~~$87.1 million, respectively. For the six months ended June 30, ~~2017,~~2018, our cash lease payments for our capital and financing leases and our operating leases were ~~$103.7~~$78.8 million and ~~$185.2~~$176.7 million, respectively. For the twelve months ending June 30, ~~2018,~~2019, we will be required to make approximately ~~$167.0~~$90.6 million and ~~$369.2~~$305.4 million of cash lease payments in connection with our existing capital and financing leases and our operating leases, respectively.

Debt and Lease Covenants

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

circumstances, reduced by intangible assets or liabilities or increased by deferred gains from sale-leaseback transactions and deferred entrance fee revenue. The debt service and lease coverage ratios are generally calculated as revenues less operating expenses, including an implied management fee and a reserve for capital expenditures, divided by the debt (principal and interest) or lease payment. In addition, our debt and lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements.

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

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

As of June 30, ~~2017,~~2018, we are in compliance with the financial covenants of our outstanding debt agreements and long-term leases.

Contractual Commitments

Significant ongoing commitments consist primarily of leases, debt, purchase commitments and certain other long-term liabilities. For a summary and complete presentation and description of our ongoing commitments and contractual obligations, see the "Contractual Commitments" section of Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~2017 filed with the SEC on February ~~15, 2017.~~22, 2018.

~~In connection~~During the three months ended June 30, 2018, the Company restructured a portfolio of 128 communities leased from Ventas, which included an extension of the initial lease term through December 31, 2025, and the Company terminated the triple net leases with ~~forming the Blackstone Venture on March 29, 2017, operating and capital and financing leases of 62~~respect to 37 communities ~~were terminated.~~leased from Welltower. As a result, the Company's payment obligations decreased $36.4 million, $56.1 million and $9.4 million for the years ending December 31, 2018, 2019, and 2020 and increased $27.6 million, $41.4 million, and $74.1 million for each of the ~~terminations, our total payment obligations for capital~~years ending December 31, 2021, 2022, and financing leases due during the twelve months ending March 31, 2018 decreased by $75.4 million, and our total future payment obligations for capital and financing leases decreased by $1,713.2 million, in each case including interest and lease payments and the residual value for financing lease obligations, as applicable. Additionally, our total payment obligations for operating leases for the twelve months ending March 31, 2018 decreased by $16.6 million, and our total future payment obligations for operating leases decreased by $128.2 million as a result of these completed transactions.thereafter, respectively. See Note 4 to the condensed consolidated financial statements contained in "Item 1. Financial Statements" for more information about ~~our formation of~~ the ~~Blackstone Venture.~~Ventas and Welltower transactions.

There ~~have been~~were no other material changes outside the ordinary course of business in our contractual commitments during the six months ended June 30, ~~2017.~~2018.

Off-Balance Sheet Arrangements

As of June 30, ~~2017,~~2018, we do not have an interest in any "off-balance sheet arrangements" (as defined in Item 303(a)(4) of Regulation S-K) that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

We own interests in certain unconsolidated ventures as described under Note 1314 to the condensed consolidated financial statements. Except in limited circumstances, our risk of loss is limited to our investment in each venture. We also own interests in certain other unconsolidated ventures that are not considered variable interest entities. The equity method of accounting has been applied in the accompanying financial statements with respect to our investment in unconsolidated ventures.

Non-GAAP Financial Measures

This Quarterly Report on Form 10-Q contains financial measures utilized by management to evaluate our operating performance and liquidity that are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). Each of these measures, Adjusted EBITDA and Adjusted Free Cash Flow, should not be considered in isolation from or as superior to or as a substitute for net income (loss), income (loss) from operations, net cash provided by (used in) operating activities, or other financial measures determined in accordance with GAAP. We use these non-GAAP financial measures to supplement our GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.

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

Adjusted EBITDA

Definition of Adjusted EBITDA

We define Adjusted EBITDA as net income (loss) before: provision (benefit) for income taxes; non-operating (income) expense items; depreciation and amortization (including non-cash impairment charges); (gain) loss on sale or acquisition of communities (including gain (loss) on facility lease ~~termination)~~termination and modification); straight-line lease expense (income), net of amortization of (above) below market rents; amortization of deferred gain; non-cash stock-based compensation expense; and change in future service obligation.

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

Management's Use of Adjusted EBITDA

We use Adjusted EBITDA to assess our overall 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 operating goals as well as achieve optimal operating performance. It provides an indicator for management to determine if adjustments to current spending decisions are needed.

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

Limitations of Adjusted EBITDA

Adjusted EBITDA has limitations as an analytical tool. Material limitations in making the adjustments to our net income (loss) to calculate Adjusted EBITDA, and using this non-GAAP financial measure as compared to GAAP net income (loss), include:

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

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

We believe Adjusted EBITDA is useful to investors in evaluating our operating performance because it is helpful in identifying trends in our day-to-day performance since the items excluded have little or no significance to our day-to-day operations and it provides an assessment of our revenue and expense management.

The table below reconciles Adjusted EBITDA from net income (loss) ~~for the three and six months ended June 30, 2017 and June 30, 2016 (in thousands):~~.


	Three Months Ended June 30, ⁽¹⁾						Six Months Ended June 30, ⁽¹⁾						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
(in thousands)													2018			2017			2018			2017
Net income (loss)	$	(46,337	)	$	(35,491	)	$	(172,698	)	$	(84,308	)	$	(165,509	)	$	(46,337	)	$	(622,743	)	$	(172,698	)
(Benefit) provision for income taxes	(2,735		)	123			81,293			1,788			(15,546		)	(2,735		)	39			81,293
Equity in loss (earnings) of unconsolidated ventures	4,570			(338		)	3,589			(1,356		)
Equity in loss of unconsolidated ventures													1,324			4,570			5,567			3,589
Debt modification and extinguishment costs	693			186			754			1,296			9			693			44			754
Loss (gain) on sale of assets, net	547			198			1,150			(2,551		)
(Gain) loss on sale of assets													(23,322		)	547			(66,753		)	1,150
Other non-operating income	(2,236		)	(2,267		)	(3,898		)	(7,305		)	(5,505		)	(2,236		)	(8,091		)	(3,898		)
Interest expense	76,476			96,604			169,545			193,507			73,901			76,476			146,441			169,545
Interest income	(804		)	(728		)	(1,435		)	(1,430		)	(2,941		)	(804		)	(5,924		)	(1,435		)
Income from operations	30,174			58,287			78,300			99,641
Income (loss) from operations													(137,589		)	30,174			(551,420		)	78,300
Depreciation and amortization	120,887			133,394			248,374			260,531			116,116			120,887			230,371			248,374
Asset impairment	1,559			4,152			22,265			7,527
Loss on facility lease termination	6,368			—			6,368			—
Goodwill and asset impairment													16,103			1,559			446,466			22,265
Loss on facility lease termination and modification, net													146,467			6,368			146,467			6,368
Straight-line lease (income) expense	(3,119		)	(523		)	(6,126		)	3,412			(2,430		)	(3,119		)	(8,595		)	(6,126		)
Amortization of above market lease, net	(1,697		)	(1,733		)	(3,394		)	(3,466		)
Amortization of (above) below market lease, net													(1,636		)	(1,697		)	(3,574		)	(3,394		)
Amortization of deferred gain	(1,093		)	(1,093		)	(2,186		)	(2,186		)	(1,089		)	(1,093		)	(2,179		)	(2,186		)
Non-cash stock-based compensation	7,246			8,994			15,020			18,763
Non-cash stock-based compensation expense													6,269			7,246			14,675			15,020
Adjusted EBITDA(1)	$	160,325		$	201,478		$	358,621		$	384,222		$	142,211		$	160,325		$	272,211		$	358,621

(1)

~~For~~The calculation of Adjusted EBITDA includes transaction and organizational restructuring costs of $5.0 million and $22.2 million for the three and six months ended June 30, 2018, respectively. The calculation of Adjusted EBITDA includes transaction and strategic project costs of $3.9 million and $11.6 million for the three and six months ended June 30, 2017, ~~the calculation of Adjusted EBITDA includes $3.9 million and $11.6 million of transaction and strategic project costs,~~ respectively. For the three and six months ended June 30, 2016, the calculation of Adjusted EBITDA includes $17.1 million and $37.1 million of integration, transaction, transaction-related and strategic project costs, respectively. Integration costs include transition costs associated with organizational restructuring (such as severance and retention payments and recruiting expenses), third party consulting expenses directly related to the integration of acquired communities (in areas such as cost savings and synergy realization, branding and technology and systems work), and internal costs such as training, travel and labor, reflecting time spent by Company personnel on integration activities and projects. Transaction ~~and transaction-related~~ costs include third party costs directly related to acquisition and disposition activity, community financing and leasing activity, our ~~ongoing~~ assessment of options and alternatives to enhance stockholder value, and ~~corporate capital structure assessment activities (including~~ stockholder relations advisory ~~matters),~~matters, and are primarily comprised of legal, finance, consulting, professional fees and other third party costs. Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance and retention costs. Strategic project costs include costs associated with certain strategic projects related to refining our strategy, building out enterprise-wide capabilities (including the EMR roll-out project) and reducing costs and achieving synergies by capitalizing on scale.

Adjusted Free Cash Flow

Definition of Adjusted Free Cash Flow

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

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

We adopted ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15") on January 1, 2018 and have applied ASU 2016-15 retrospectively for all periods presented. Among other things, ASU 2016-15 provides that debt prepayment and extinguishment costs will be classified within financing activities in the statement of cash flows. We have identified $0.7 million of cash paid for debt modification and extinguishment costs for each of the three and six months ended June 30, 2017, which we have retrospectively classified as cash flows from financing activities, resulting in a corresponding increase to the amount of net cash provided by operating activities for such periods. We did not change our definition of Adjusted Free Cash Flow upon our adoption of ASU 2016-15. Following our adoption of ASU 2016-15, the amount of Adjusted Free Cash Flow increased $0.7 million for each of the three and six months ended June 30, 2017. See Note 2 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information about ASU 2016-15.

Management's Use of Adjusted Free Cash Flow

We use Adjusted Free Cash Flow 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.

Adjusted Free Cash Flow measures our liquidity based on operational factors that management can impact in the short-term, namely the cost structure or expenses of the organization. Adjusted Free Cash Flow 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, (ii) to review our ability to pay dividends to stockholders or engage in share repurchases, (iii) to review our ability to make capital expenditures, (iv) for other corporate planning purposes and/or (v) in making compensation determinations for certain of our associates (including our named executive officers).

Limitations of Adjusted Free Cash Flow

Adjusted Free Cash Flow has limitations as an analytical tool. Material limitations in making the adjustments to our net cash provided by (used in) operating activities to calculate Adjusted Free Cash Flow, and using this non-GAAP financial measure as compared to GAAP net cash provided by (used in) operating activities, include:

Adjusted Free Cash Flow does not represent cash available for dividends or discretionary expenditures, since we have mandatory debt service requirements and other non-discretionary expenditures not reflected in this measure; and

the cash portion of non-recurring charges related to gain (loss) on lease termination and modification and extinguishment of debt activities generally represent charges (gains), which may significantly affect our financial results.

In addition, our proportionate share of Adjusted Free Cash Flow of unconsolidated ventures has limitations as an analytical tool because such measure does not represent cash available directly for use by our consolidated business except to the extent actually distributed to us, and we do not have control, or we share control in determining, the timing and amount of distributions from our unconsolidated ventures and, therefore, we may never receive such cash.

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

We believe presentation of our proportionate share of Adjusted Free Cash Flow of unconsolidated ventures is useful to investors since such measure reflects the cash generated by the operating activities of the unconsolidated ventures for the reporting period and, to the extent such cash is not distributed to us, it generally represents cash used or to be used by the ventures for the repayment

of debt, investing in expansions or acquisitions, reserve requirements, or other corporate uses by such ventures, and such uses reduce our potential need to make capital contributions to the ventures of our proportionate share of cash needed for such items.

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



	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2018			2017			2018			2017
Net cash provided by operating activities	$	60,620		$	133,759		$	98,584		$	200,532
Net cash (used in) provided by investing activities	(79,643		)	(59,751		)	11,512			(259,494		)
Net cash (used in) provided by financing activities	(185,876		)	19,375			(201,980		)	(4,186		)
Net (decrease) increase in cash, cash equivalents and restricted cash	$	(204,899	)	$	93,383		$	(91,884	)	$	(63,148	)

Net cash provided by operating activities	$	60,620		$	133,759		$	98,584		$	200,532
Changes in operating assets and liabilities	6,076			(40,401		)	36,476			8,191
Proceeds from refundable entrance fees, net of refunds	(171		)	(652		)	52			(1,554		)
Lease financing debt amortization	(18,787		)	(14,382		)	(39,901		)	(31,630		)
Loss on facility lease termination and modification, net	13,044			—			13,044			—
Distributions from unconsolidated ventures from cumulative share of net earnings	(739		)	(453		)	(1,147		)	(892		)
Non-development capital expenditures, net	(47,681		)	(38,832		)	(89,417		)	(73,554		)
Property insurance proceeds	—			1,571			156			2,969
Adjusted Free Cash Flow ⁽¹⁾	$	12,362		$	40,610		$	17,847		$	104,062

(1) The calculation of Adjusted Free Cash Flow includes transaction and organizational restructuring costs of $5.0 million and $22.2 million for the three and six months ended June 30, 2018, respectively. The calculation of Adjusted Free Cash Flow includes transaction and strategic project costs of $3.9 million and $11.6 million for the three and six months ended June 30, 2017, ~~and June 30, 2016 (in thousands):~~

Three Months Ended
June 30,

Six Months Ended
June 30,
2017 2016 2017 2016
Net cash provided by operating activities $ 133,108
$ 107,496
$ 199,874
$ 177,839
Net cash used in investing activities (60,843 ) (82,288 ) (261,215 ) (156,736 )
Net cash used in financing activities 20,026
(57,017 ) (3,528 ) (70,079 )
Net decrease in cash and cash equivalents $ 92,291
$ (31,809 ) $ (64,869 ) $ (48,976 )

Net cash provided by operating activities $ 133,108
$ 107,496
$ 199,874
$ 177,839
Changes in operating assets and liabilities (40,401 ) 10,420
8,191
38,560
Proceeds from refundable entrance fees, net of refunds (652 ) (6 ) (1,554 ) (599 )
Lease financing debt amortization (14,382 ) (15,532 ) (31,630 ) (30,834 )
Distributions from unconsolidated ventures from cumulative share of net earnings (453 ) —
(892 ) —
Non-development capital expenditures, net (38,832 ) (58,759 ) (73,554 ) (115,793 )
Property insurance proceeds 1,571
1,267
2,969
3,597
Adjusted Free Cash Flow $ 39,959
$ 44,886
$ 103,404
$ 72,770
respectively.

The table below reconciles our proportionate share of Adjusted Free Cash Flow of unconsolidated ventures from net cash provided by ~~(used in)~~ operating activities of such unconsolidated ~~ventures for the three and six months ended June 30, 2017 and June 30, 2016 (in thousands).~~ventures. For purposes of this presentation, amounts for each line item represent the aggregate amounts of such line items for all of our unconsolidated ventures.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
(in thousands)													2018			2017			2018			2017
Net cash provided by operating activities	$	85,867		$	55,842		$	145,791		$	110,435		$	47,510		$	85,867		$	97,772		$	145,791
Net cash used in investing activities	(68,585		)	(45,682		)	(1,218,665		)	(83,606		)	(15,746		)	(26,408		)	(30,388		)	(1,170,523		)
Net cash provided by (used in) financing activities	(29,166		)	(14,784		)	1,115,893			(20,635		)
Net increase in cash and cash equivalents	$	(11,884	)	$	(4,624	)	$	43,019		$	6,194
Net cash (used in) provided by financing activities													(29,380		)	(37,686		)	(52,659		)	1,107,373
Net increase in cash, cash equivalents and restricted cash													$	2,384		$	21,773		$	14,725		$	82,641

Net cash provided by operating activities	$	85,867		$	55,842		$	145,791		$	110,435		$	47,510		$	85,867		$	97,772		$	145,791
Changes in operating assets and liabilities	(16,559		)	(5,205		)	(14,473		)	(7,525		)	(13,838		)	(16,559		)	(12,719		)	(14,473		)
Proceeds from refundable entrance fees, net of refunds	(5,028		)	(677		)	(9,393		)	(2,776		)	(3,323		)	(5,028		)	(10,035		)	(9,393		)
Non-development capital expenditures, net	(23,739		)	(24,507		)	(40,766		)	(46,312		)	(18,867		)	(23,739		)	(38,928		)	(40,766		)
Property insurance proceeds	834			—			1,227			—			634			834			1,535			1,227
Adjusted Free Cash Flow of unconsolidated ventures	$	41,375		$	25,453		$	82,386		$	53,822		$	12,116		$	41,375		$	37,625		$	82,386

Brookdale weighted average ownership percentage	19.1		%	38.7		%	20.2		%	34.1		%	47.9		%	19.1		%	30.9		%	20.2		%
Brookdale's proportionate share of Adjusted Free Cash Flow of unconsolidated ventures	$	7,920		$	9,860		$	16,670		$	18,365		$	5,798		$	7,920		$	11,622		$	16,670

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We had cash and cash equivalents and marketable securities of $146.6 million as of June 30, 2018, which consisted primarily of cash, money market funds, commercial paper and corporate bonds. Our interest income on cash equivalents and marketable securities is affected by changes in interest rates, market and credit risks. However, our commercial paper and corporate bonds securities have remaining maturities of less than three months and changes in the value of these securities would not be expected to have a material impact on our liquidity or results of operations.

We are subject to market risks from changes in interest rates charged on our credit facilities, other floating-rate indebtedness and lease payments subject to floating rates. The impact on earnings and the value of our long-term debt and lease payments are subject to change as a result of movements in market rates and prices. As of June 30, ~~2017,~~2018, we had approximately ~~$2.3~~$2.4 billion of long-term fixed rate debt, ~~$1.3~~$1.4 billion of long-term variable rate debt, ~~including our secured credit facility,~~ and ~~$1.6~~$1.1 billion of capital and financing lease obligations. As of June 30, ~~2017,~~2018, our total fixed-rate debt and variable-rate debt outstanding had a weighted-average interest rate of ~~4.90% (calculated using an imputed interest rate of 7.5% for our $316.3 million 2.75% convertible senior notes due June 15, 2018)~~4.82%.

We enter into certain interest rate cap agreements with major financial institutions to effectively manage our risk above certain interest rates on variable rate debt. As of June 30, ~~2017, $2.3~~2018, $2.4 billion, or ~~64.7%~~63.6%, of our long-term debt, excluding our capital and financing lease obligations, has fixed rates. As of June 30, ~~2017, $776.4~~2018, $822.8 million, or ~~21.6%~~22.1%, of our long-term debt, excluding capital and financing lease obligations, is subject to interest rate cap agreements. The remaining ~~$495.1~~$533.6 million, or ~~13.7%~~14.3%, of our debt is variable rate debt not subject to any interest rate cap or swap agreements. ~~A change in interest rates would have impacted~~Our outstanding variable rate debt is indexed to LIBOR, and accordingly our annual interest expense related to ~~all outstanding~~ variable rate debt ~~excluding our capital and financing lease obligations, as follows (after~~is directly affected by movements in LIBOR. After consideration of hedging instruments currently in ~~place): a~~place, increases in LIBOR of 100, 200, 500 and 1,000 basis ~~point increase in interest rates~~points would have ~~an impact~~resulted in additional annual interest expense of ~~$13.0~~$13.9 million, ~~a 500 basis point increase in interest rates would have an impact of $52.4~~$26.6 million, $47.9 million and ~~a 1,000 basis point increase~~$75.1 million, respectively. Certain of the Company's variable debt instruments include springing provisions that obligate the Company to acquire additional interest rate caps in the event that LIBOR increases above certain levels, and the implementation of those provisions would result in additional mitigation of interest ~~rates would have an impact of $77.7 million.~~costs.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that, as of June 30, ~~2017,~~2018, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There has not been any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended June 30, ~~2017~~2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information contained in Note 910 to the Condensed Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by this reference.

Item 1A. Risk Factors

There have been no material changes to the risk factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

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


(a)	Not applicable.


(b)	Not applicable.


(c)	The following table contains information regarding purchases of our common stock made during the quarter ended June 30, ~~2017~~2018 by or on behalf of the Company or any ''affiliated purchaser,'' as defined by Rule 10b-18(a)(3) of the Exchange Act:

Period Total
Number of
Shares
Purchased (1) Average
Price Paid
per Share Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs Approximate Dollar Value of
Shares that May Yet Be
Purchased Under the
Plans or Programs ($ in thousands) (2)
4/1/2017 - 4/30/2017 —
—
—
90,360
5/1/2017 - 5/31/2017 14,833
$ 14.02
—
90,360
6/1/2017 - 6/30/2017 —
—
—
90,360
Total 14,833
$ 14.02
—



Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ($ in thousands) (2)
4/1/2018 - 4/30/2018	—	—		—	90,360
5/1/2018 - 5/31/2018	12,685	$	7.64	—	90,360
6/1/2018 - 6/30/2018	—	—		—	90,360
Total	12,685	$	7.64	—


(1)	Consists entirely of shares withheld to satisfy tax liabilities due upon the vesting of restricted stock. The average price paid per share for such share withholding is based on the closing price per share on the vesting date of the restricted stock or, if such date is not a trading day, the trading day immediately prior to such vesting date.

(2)

On November 1, 2016, the Company announced that its Board of Directors had approved a share repurchase program that authorizes the Company to purchase up to $100.0 million in the aggregate of its common stock. The share repurchase program is intended to be implemented through purchases made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or block trades, or by any combination of such methods, in accordance with applicable insider trading and other securities laws and regulations. The size, scope and timing of any purchases will be based on business, market and other conditions and factors, including price, regulatory and contractual requirements, and capital availability. The repurchase program does not obligate the Company to acquire any particular amount of common stock and the program may be suspended, modified or discontinued at any time at the Company's discretion without prior notice. Shares of stock repurchased under the program will be held as treasury shares. No shares were purchased pursuant to the repurchase program during the three months ended June 30, ~~2017,~~2018, and approximately $90.4 million remained available under the repurchase program as of June 30, ~~2017.~~2018.

Item 6. Exhibits




Exhibit No.		Description

3.1		Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K filed on February 26, 2010 (File No. 001-32641)).
3.2		Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, dated July 30, 2014 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on August 5, 2014 (File No. 001-32641)).
3.3		Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on March 6, 2017 (File No. 001-32641)).
4.1		Form of Certificate for common stock (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1 (Amendment No. 3) filed on November 7, 2005 (File No. 333-127372)).
10.1		Master Lease and Security Agreement dated as of April 26, 2018 by and between certain of the Company's affiliates named therein as lessees and certain of the affiliates of Ventas, Inc. named therein as lessors (the "Master Lease").†
10.2		Guaranty of Master Lease dated as of April 26, 2018 by and between the Company and certain of its affiliates named therein and Ventas, Inc. and certain of its affiliates named therein.†

~~See Exhibit Index immediately following the signature page hereto, which Exhibit Index is incorporated by reference as if fully set forth herein.~~



10.3		Amended and Restated Tier I Severance Pay Policy dated April 15, 2018 (incorporated by reference to Exhibit 10.52 to the Company's Amendment No. 1 to Annual Report on Form 10-K/A filed on April 24, 2018 (File No. 001-32641)).
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.


†	Portions of this exhibit have been omitted pursuant to a request for confidential treatment with the SEC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	BROOKDALE SENIOR LIVING INC.
	(Registrant)

	By:	/s/ Lucinda M. Baier
	Name:	Lucinda M. Baier
	Title:	President and Chief ~~Financial~~Executive Officer (Principal ~~Financial~~Executive Officer)
	Date:	August ~~8, 2017~~7, 2018

~~EXHIBIT INDEX~~




~~Exhibit No.~~		~~Description~~

~~3.1~~		~~Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K filed on February 26, 2010 (File No. 001-32641)).~~
~~3.2~~		Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, dated July 30, 2014 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on August 5, 2014 (File No. 001-32641)).
~~3.3~~		~~Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on March 6, 2017 (File No. 001-32641)).~~
~~4.1~~		~~Form of Certificate for common stock (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1 (Amendment No. 3) filed on November 7, 2005 (File No. 333-127372)).~~
~~4.2~~		Indenture, dated as of June 14, 2011, between the Company and American Stock Transfer & Trust Company, LLC, as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on June 14, 2011 (File No. 001-32641)).
~~4.3~~		Supplemental Indenture, dated as of June 14, 2011, between the Company and American Stock Transfer & Trust Company, LLC, as Trustee (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on June 14, 2011 (File No. 001-32641)).
~~4.4~~		~~Form of 2.75% Convertible Senior Note due 2018 (included as part of Exhibit 4.3).~~
~~10.1~~		Agreement dated as of July 25, 2017 by and among the Company, Land & Buildings Investment Management, LLC, Land & Buildings Capital Growth Fund LP and Jonathan Litt (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 26, 2017 (File No. 001-32641)).
~~31.1~~		~~Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~
~~31.2~~		~~Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~
32		~~Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~
~~101.INS~~		~~XBRL Instance Document.~~
~~101.SCH~~		~~XBRL Taxonomy Extension Schema Document.~~
~~101.CAL~~		~~XBRL Taxonomy Extension Calculation Linkbase Document.~~
~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document.~~
~~101.LAB~~		~~XBRL Taxonomy Extension Label Linkbase Document.~~
~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Linkbase Document.~~



	Shares Granted	Value Per Share		Total Value
Three months ended March 31, 2017	2,392	$	14.84	$	35,497
Three months ended June 30, 2017	71	$	13.11	$	937



	June 30, 2017		December 31, 2016
Mortgage notes payable due 2017 through 2047; weighted average interest rate of 4.63% for the six months ended June 30, 2017, less debt discount and deferred financing costs of $7.8 million and $4.5 million at June 30, 2017 and December 31, 2016, respectively (weighted average interest rate of 4.50% in 2016)	$	3,206,593	$	3,184,229
Capital and financing lease obligations payable through 2032; weighted average interest rate of 7.96% for the six months ended June 30, 2017 (weighted average interest rate of 8.08% in 2016)	1,591,264		2,485,520
Convertible notes payable in aggregate principal amount of $316.3 million, less debt discount and deferred financing costs of $13.7 million and $20.9 million at June 30, 2017 and December 31, 2016, respectively, interest at 2.75% per annum, due June 15, 2018	302,501		295,397
Construction financing (weighted average interest rate of 8.00% in 2016)	—		3,644
Notes payable issued to finance insurance premiums, weighted average interest rate of 2.94% for the six months ended June 30, 2017, due 2017	10,828		—
Other notes payable, weighted average interest rate of 5.80% for the six months ended June 30, 2017 (weighted average interest rate of 5.33% in 2016) and maturity dates ranging from 2018 to 2021	77,886		76,377
Total long-term debt and capital and financing lease obligations	5,189,072		6,045,167
Less current portion	615,404		215,255
Total long-term debt and capital and financing lease obligations, less current portion	$	4,573,668	$	5,829,912