Brookdale Senior Living Inc. 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This discussion and analysis should be read in conjunction with our historical consolidated financial statements and related notes contained in "Item 8. Financial Statements and Supplementary Data." In addition to historical information, this discussion and analysis may contain forward-looking statements that involve risks, uncertainties, and assumptions, which could cause actual results to differ materially from management's expectations. See additional risks and uncertainties described in "Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995" for more information. Factors that could cause such differences include those described in this section and "Item 1A. Risk Factors" of this Annual Report on Form 10-K. Executive Overview and Recent Developments Our Business As of December 31, 2020, we are the largest operator of senior living communities in the United States based on total capacity, with 726 communities in 43 states and the ability to serve approximately 64,000 residents. We offer our residents access to a broad continuum of services across the most attractive sectors of the senior living industry. We operate and manage independent living, assisted living, memory care, and CCRCs. We also offer a range of home health, hospice, and outpatient therapy services to more than 17,000 patients as of that date. Our community and service offerings combine housing with hospitality and healthcare services. Our senior living communities offer residents a supportive home-like setting, assistance with ADLs such as eating, bathing, dressing, toileting, transferring/walking, and, in certain communities, licensed skilled nursing services. We also provide home health, hospice, and outpatient therapy services to residents of many of our communities and to seniors living outside of our communities. By providing residents with a range of service options as their needs change, we provide greater continuity of care, enabling seniors to age-in-place, which we believe enables them to maintain residency with us for a longer period of time. The ability of residents to age-in-place is also beneficial to our residents and their families who are concerned with care decisions for their elderly relatives. 48 Strategy Our goal is to be the first choice in senior living by being the nation's most trusted and effective senior living provider and employer. We believe there are significant opportunities to create and deliver stockholder value as we execute on our strategy to achieve this goal. We continue to execute our core operational strategy that we initiated in early 2018, and we believe successful execution on that strategy provides the best opportunity for us to navigate and recover from the pandemic and to create stockholder value. We have supplemented our operational strategy with initiatives intended to complement and enhance our core operational efforts and to position us for future growth and success as we encounter changes and trends in demographics, customer preferences, technology, and healthcare delivery and outcomes. Our refined strategy is focused on these priorities: • Continued Operational Improvement and Efficiency. We are focused on our core senior living communities and intend to continue to drive operational improvements. Through our "win locally" initiative, we intend to provide choices for high quality care and personalized service by caring associates while leveraging our industry-leading scale and experience. Such efforts include optimizing our sales and marketing processes, prioritizing communities with the most opportunities for growth, and ensuring that our communities and their programming are competitive in the market. We also continue to focus on attracting, engaging, developing, and retaining the best associates by maintaining a compelling value proposition in the areas of leadership, career development, and meaningful work. We believe engaged associates lead to lower turnover, improved operations, and ultimately an enhanced resident experience that drives accelerated growth. To sharpen our focus on our core senior living operations, we are (and have been) executing on initiatives to reduce the complexity of our business and to ensure appropriate risk-reward tradeoffs in our highly regulated product lines. Such initiatives include exiting substantially all our entry fee CCRC business in 2020 (which also significantly reduced the number of skilled nursing facilities we operate) and continuing to optimize our management services business. • Senior Living Portfolio. Since initiating our operational turnaround strategy in early 2018, we have continued our portfolio optimization initiative through which we have disposed of owned and leased communities and restructured leases. Such transactions have included restructuring our leases with our three largest landlords, sales and conveyance of owned communities, and dispositions of substantially all of our remaining ownership interests in unconsolidated ventures, including our entry fee CCRC venture with Healthpeak. As we move forward in 2021, we intend to continue to (i) expand our footprint and services in core markets where we have, or can achieve, a clear leadership position, (ii) execute an ongoing capital recycling program through acquiring leased or managed communities and exiting underperforming owned assets or leases when possible, and (iii) pivot back to portfolio growth through targeted development, investment, and acquisition opportunities. We will continue to invest in our development capital expenditures program through which we expand, renovate, reposition, and redevelop selected existing senior living communities where economically advantageous, although at a reduced pace during the pandemic. • Expansion of Healthcare and Service Platform. Our vision is to enable those we serve to live well by offering our residents the highest-quality healthcare and wellness platform in the senior living industry. We intend to further integrate our healthcare service model in certain markets in 2021. We also intend to pursue initiatives designed to accelerate growth in our healthcare services offered to residents within our communities and private duty services business. Such initiatives may include implementation of improvements to our sales and marketing efforts associated with our healthcare services, pursuit of additional or expanded relationships with managed care providers, and further development of healthcare relationships to capitalize on growth opportunities. We believe the successful execution of these initiatives and our healthcare strategy will drive incremental revenue by increasing move-ins, improving resident health and wellbeing, and as a result extend residents' average length of stay and increase occupancy. We also believe that we will improve the results of operations as we further develop as a partner of choice for healthcare service or payor organizations seeking to provide services within our communities and/or improve health outcomes at an overall lower cost of care. • Driving Innovation and Leveraging Technology. We are engaged in a variety of innovation initiatives and over time plan to pilot and test new ideas, technologies, and operating models in order to enhance our residents' engagement and experience, improve outcomes, and increase average length of stay and occupancy. With our technology platform, we also expect to identify solutions to reduce complexity, increase productivity, lower costs, and increase our ability to collaborate with third parties. COVID-19 Pandemic The COVID-19 pandemic has adversely impacted, and likely will continue to adversely impact the senior living industry and our business. Due to the average age and prevalence of chronic medical conditions among our residents and patients, they generally are at disproportionately higher risk of hospitalization and adverse outcomes if they contract COVID-19. We continue 49 to serve and care for seniors at our communities and their homes through the pandemic. A significant portion of our corporate support associates have worked from home since March 2020. The health and wellbeing of our residents, patients, and associates is and has been our highest priority. We initiated our COVID-19 preparation efforts in January 2020. Our response efforts center on infection prevention and control protocols, including following requirements and guidance of federal, state, and local governments and agencies, including the CDC and the CMS. We have enhanced and reinforced training our associates in such protocols and continue to actively monitor government requirements and guidance and adapt our policies, procedures, and response efforts when applicable. Upon confirmation of positive COVID-19 exposure at a community, we take actions intended to minimize further exposure, including associates' adhering to personal protection protocols, isolating residents or finding placement in an alternate care setting to best address their care needs, and in some cases, restricting new resident admissions, as directed by local health authorities. Seeking to prevent the introduction of COVID-19 into our communities, and to help control further exposure to infections within communities, in March 2020 we began restricting visitors at all our communities to essential healthcare personnel and certain compassionate care situations, screening associates and permitted visitors, suspending group outings, modifying communal dining and programming to comply with social distancing guidelines and, in most cases, implementing in-room only dining and activities programming, requesting that residents refrain from leaving the community unless medically necessary, and requiring new residents and residents returning from a hospital or nursing home to isolate in their apartment for fourteen days. These restrictions were in place across our portfolio for the three months ended June 30, 2020. We have adopted a framework for determining when to ease restrictions at each of our communities based on several criteria, including regulatory requirements and guidance, completion of baseline testing at the community, and the presence of current confirmed positive COVID-19 cases. Under this framework, we began easing restrictions on a community-by-community basis in July 2020 where regulatory requirements and guidance allowed, which easing may have included permitting outdoor, and in some cases, indoor visits with families, reduced capacity or socially distanced communal dining, limited communal activities programming, and in-person prospective resident visits. Although we are hopeful that administration of the vaccine to our residents and associates will enable us to further ease restrictions at our communities, those restrictions may continue for some time, and we may revert to more restrictive measures if the pandemic worsens, as necessary to comply with regulatory requirements, or at the direction of state or local health authorities. In April 2020, we proactively commenced a resident and associate testing program for our communities. We undertook the program to identify positive, including asymptomatic, individuals, to better understand how our infection protocols are working, to help minimize the exposure to residents and associates of someone known to be COVID-19 positive, and in some cases to comply with state and local testing requirements. In July 2020, we completed baseline testing at all of our communities, and we have continued testing residents and associates at many of our communities. We also continue to utilize rapid point of care antigen test kits supplied by HHS at those of our communities with CLIA waivers. Our testing program has accumulated approximately 320,000 test results. Approximately 1.2% of our residents were known to have current COVID-19 positive test results on February 22, 2021. Further testing, whether undertaken proactively, as a result of regulatory requirements, or at the direction of state or local health authorities, may result in significant additional expense, additional temporary restrictions on move-ins at affected communities, continued need for isolating positive residents, increased use of PPE by our associates, and increased employee-related costs. In December 2020, two COVID-19 vaccines received emergency use authorization from the U.S. Food and Drug Administration. We elected to work with CVS Health Corporation, with whom we have a longstanding relationship to provide flu shot clinics in our communities, to administer vaccinations on site to our eligible residents and associates through the Pharmacy Partnership for Long-Term Care Program offered through the CDC. Our work to prepare for and host vaccine clinics includes extensive planning, gathering insurance information, obtaining consents, scheduling appointments, holding educational sessions with residents, families, and associates and detailed coordination of traffic flow and observation areas. We hosted our first clinics on December 18, 2020 and by January 22, 2021 had hosted over 500 community vaccine clinics. As of February 22, 2021, first dose vaccine clinics had been completed for residents and associates at 100% of our communities and approximately 85% of our communities have had second dose vaccine clinics. The pandemic, including the related restrictions at our communities, have significantly disrupted demand for senior living communities and the sales process, which typically includes in-person prospective resident visits within communities. We believe potential residents and their families are more cautious regarding moving into senior living communities while the pandemic continues, and such caution may persist for some time. In response to these developments, we have redesigned our sales process to include virtual tours, video engagement, and outdoor prospective resident meetings, enhanced and adapted our marketing programs to address the social distancing environment, and sought to strengthen our relationships with referral sources. During the third quarter of 2020, we returned to using in-person prospective resident visits for a majority of our communities. However, several large markets continue with virtual-only prospective resident visits as of December 31, 2020. We have placed restrictions on move-ins at our communities when circumstances warrant, including at the direction of state or local health authorities. Although these restrictions began to ease considerably in August 2020, restrictions on move-ins 50 escalated throughout the fourth quarter of 2020 due to the resurgence of the virus. At the end of the second, third, and fourth quarters of 2020, 86%, 98%, and 89% of our communities, respectively, were accepting new move-ins. As of February 22, 2021, 97% of our communities were accepting new move-ins. We cannot predict with reasonable certainty whether or when demand for senior living communities will return to pre-COVID-19 levels or the extent to which the pandemic’s effect on demand may adversely affect the amount of resident fees we are able to collect from our residents. The pandemic, including the related restrictions at our communities, began to adversely impact our occupancy and resident fee revenue significantly during March 2020, as new resident leads, visits (including virtual visits), and move-in activity declined significantly compared to typical levels. The year-over-year decrease in monthly move-ins of our same community portfolio has moderated from 64.2% in April 2020 to 26.5% in December 2020. Our consolidated senior housing portfolio's weighted average occupancy has declined in each month of the pandemic, from 82.7% in March 2020 to 71.5% in December 2020, and was 70.0% in January 2021. We estimate that the pandemic, including the related restrictions at our communities, resulted in $281.1 million of lost resident fee revenue for the year ended December 31, 2020, including $228.5 million of lost resident fee revenue in our consolidated senior housing portfolio. Further deterioration of our resident fee revenue will result from lower move-in activity and the resident attrition inherent in our business, which may increase due to the impacts of COVID-19. Our home health average daily census also began to decrease in March 2020 due to lower occupancy in our communities and fewer elective medical procedures and hospital discharges, resulting in a 14.6% year-over-year decline in home health average daily census for the year ended December 31, 2020. We expect home health average daily census to continue to gradually recover sequentially with increased elective medical procedures and hospital discharges and senior housing occupancy. We estimate that the pandemic, including the related restrictions at our communities, resulted in $52.6 million of lost resident fee revenue for the Health Care Services segment for the year ended December 31, 2020 . Facility operating expense for the year ended December 31, 2020 includes $125.5 million of incremental direct costs to prepare for and respond to the pandemic, including costs for: acquisition of additional PPE, medical equipment, and cleaning and disposable food service supplies; enhanced cleaning and environmental sanitation; increased employee-related costs, including labor, workers compensation, and health plan expense; increased expense for general liability claims; and COVID-19 testing of residents and associates where not otherwise covered by government payor or third-party insurance sources. We are not able to reasonably predict the total amount of costs we will incur related to the pandemic, and such costs may continue to be substantial. We also recorded non-cash impairment charges in our operating results of $105.6 million for the year ended December 31, 2020 for our operating lease right-of-use assets and property, plant and equipment and leasehold intangibles, primarily due to the COVID-19 pandemic and lower than expected operating performance at communities with impaired assets. We have taken, and continue to take, actions to enhance and preserve our liquidity in response to the pandemic. During the year ended December 31, 2020, we completed our financing plans in the regular course of business, including refinancing substantially all of our 2020 and 2021 maturities. In addition, on August 31, 2020, we terminated our $250 million revolving credit facility and obtained $266.9 million of non-recourse mortgage financing on 16 communities, most of which had secured the credit facility prior to its termination. During the year ended December 31, 2020, we accepted $109.8 million of cash for grants under the Provider Relief Fund and $87.5 million of accelerated/advanced Medicare payments, and we deferred $72.7 million of the employer portion of social security payroll taxes. These programs were created or expanded under the CARES Act, as described below. We also delayed or canceled a number of elective capital expenditure projects, resulting in an approximate $67 million reduction to our pre-pandemic full-year 2020 capital expenditure plans, and suspended repurchases under our existing share repurchase program. On July 26, 2020, we restructured our 120 community triple-net master lease with Ventas in a multipart transaction. The components included, among other things, reducing our initial annual minimum rent to $100 million, representing a reduction of approximately $86 million over the twelve months ending June 30, 2021, and removal of the prior requirements that we satisfy financial covenants and maintain a security deposit with Ventas. We paid a $119.2 million one-time cash lease payment to Ventas in connection with our lease restructuring transaction effective July 26, 2020. As of December 31, 2020, our total liquidity was $575.5 million, consisting of $380.4 million of unrestricted cash and cash equivalents, $172.9 million of marketable securities, and $22.2 million of availability on our secured credit facility. We continue to seek opportunities to enhance and preserve our liquidity, including through maintaining expense discipline, continuing to evaluate our financing structure and the state of debt markets, seeking further government-sponsored financial relief related to the COVID-19 pandemic, and completing the pending sale of 80% of the equity in our Health Care Services segment. There is no assurance that debt financing will continue to be available on terms consistent with our expectations or at all, that our efforts will be successful in seeking further government-sponsored financial relief or regarding the amount of, or conditions required to qualify for, any such relief, or that the closing of the pending transaction will be completed in accordance with our expectations, or at all, or generate cash proceeds to us in the amount we anticipate. 51 The CARES Act, signed into law on March 27, 2020, and Paycheck Protection Program and Health Care Enhancement Act, signed into law on April 24, 2020, provide liquidity and financial relief to certain businesses, among other things. The impacts to us of certain provisions of the CARES Act are summarized below. • During the year ended December 31, 2020, we accepted $109.8 million of cash for grants from the Provider Relief Fund under which grants have been made available to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19. The accepted grants were made available pursuant to the following distributions from the Provider Relief Fund: • $101.7 million pursuant to General Distributions, with the aggregate amount ultimately determined based on a percentage of our year-over-year changes in patient care revenue and certain operating and other expenses for the first and second quarters of 2020. • $4.6 million pursuant to the Skilled Nursing Facility Targeted Distribution, which generally related to our certified skilled nursing facilities. • $3.5 million pursuant to the Nursing Home Infection Control Distribution, including incentive payments, which related to our skilled nursing care provided through our CCRCs. Grants received from the Provider Relief Fund are subject to the terms and conditions of the program, including that such funds may only be used to prevent, prepare for, and respond to COVID-19 and will reimburse only for healthcare related expenses or lost revenues that are attributable to COVID-19 and have not been reimbursed from other sources or that other sources are not obligated to reimburse. The permissible uses of grants from the Nursing Home Infection Control Distribution are further limited to certain infection control expenses. The program requires us to report to HHS on our use of the grants, and our reporting is subject to audit. During the year ended December 31, 2020, we recognized $109.8 million of the grants as other operating income based upon our estimates of our satisfaction of the conditions of the grants during such period. HHS continues to evaluate future allocations of, and regulation and guidance regarding, grants made under the Provider Relief Fund. We intend to pursue additional funding that may become available. However, there can be no assurance that we will qualify for, or receive, grants in the amount we expect, that additional restrictions on the permissible uses or terms and conditions of the grants will not be imposed by HHS, or that future funding programs will be made available for which we qualify. • During the year ended December 31, 2020, we received $87.5 million under the Accelerated and Advance Payment Program administered by CMS, which was temporarily expanded by the CARES Act. Approximately $75.2 million related to our Health Care Services segment and the remainder related to our CCRCs segment. Under the program, we requested acceleration/advancement of 100% of our Medicare payment amount for a three-month period. The Continuing Appropriations Act, 2021 and Other Extensions Act, enacted on October 1, 2020, amended the repayment terms for accelerated/advanced payments. As amended, recoupment of accelerated/advanced payments will begin one year after payments were issued. Payments will be recouped at a rate of 25% of Medicare payments for the first eleven months following the anniversary of issuance and at a rate of 50% of Medicare payments for the next six months. Any outstanding balance of accelerated/advanced payments will be due following such recoupment period. Pursuant to the Purchase Agreement we expect to repay the then outstanding balance of such accelerated/advance payments related to our Health Care Services segment at the closing of the sale of 80% of our equity in our Health Care Services segment. • Under the CARES Act, we have elected to defer payment of the employer portion of social security payroll taxes incurred from March 27, 2020 through December 31, 2020. One-half of such deferral amount will become due on each of December 31, 2021 and December 31, 2022. As of December 31, 2020, we have deferred payment of $72.7 million under the program. • The CARES Act temporarily suspended the 2% Medicare sequestration for the period May 1, 2020 to December 31, 2020, which primarily benefited our Health Care Services segment. This suspension had a favorable impact of $4.0 million on the segment’s resident fee revenue for the year ended December 31, 2020. The Consolidated Appropriations Act, 2021, enacted on December 27, 2020, extended the sequestration suspension through March 31, 2021. • We are eligible to claim the employee retention tax credit for certain of our associates under the CARES Act. The refundable tax credit for 2020 is available to employers that fully or partially suspend operations during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19, and is equal to 50% of qualified wages paid after March 12, 2020 through December 31, 2020 to qualified employees, with a maximum credit of $5,000 per employee. We estimate that we will be eligible to claim tax credits of 52 approximately $10 million for 2020. The credit was modified and extended for wages paid from January 1, 2021 through June 30, 2021 by the Consolidated Appropriations Act, 2021, and we are assessing our eligibility to claim such credit. There can be no assurance that we will qualify for, or receive, tax credits in the amount we expect. In addition to the grants described above, we have received and recognized $5.9 million of other operating income from grants from other government sources. We cannot predict with reasonable certainty the impacts that COVID-19 ultimately will have on our business, results of operations, cash flow, and liquidity, and our response efforts may continue to delay or negatively impact our strategic initiatives, including plans for future growth. The ultimate impacts of COVID-19 will depend on many factors, some of which cannot be foreseen, including the duration, severity, and breadth of the pandemic and any resurgence of the disease; the impact of COVID-19 on the nation’s economy and debt and equity markets and the local economies in our markets; the development, availability, utilization, and efficacy of COVID-19 testing, therapeutic agents, and vaccines and the prioritization of such resources among businesses and demographic groups; government financial and regulatory relief efforts that may become available to business and individuals, including our ability to qualify for and satisfy the terms and conditions of financial relief; perceptions regarding the safety of senior living communities during and after the pandemic; changes in demand for senior living communities and our ability to adapt our sales and marketing efforts to meet that demand; the impact of COVID-19 on our residents’ and their families’ ability to afford our resident fees, including due to changes in unemployment rates, consumer confidence, housing markets, and equity markets caused by COVID-19; changes in the acuity levels of our new residents; the disproportionate impact of COVID-19 on seniors generally and those residing in our communities; the duration and costs of our response efforts, including increased equipment, supplies, labor, litigation, testing, vaccination clinic, and other expenses; the impact of COVID-19 on our ability to complete financings, refinancings, or other transactions (including dispositions) or to generate sufficient cash flow to cover required interest and lease payments and to satisfy financial and other covenants in our debt and lease documents; increased regulatory requirements, including unfunded, mandatory testing; increased enforcement actions resulting from COVID-19; government action that may limit our collection or discharge efforts for delinquent accounts; and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or our response efforts. 2021 Pending Sale of Health Care Services On February 24, 2021, we entered into the Purchase Agreement with affiliates of HCA Healthcare providing for the sale of 80% of our equity in our Health Care Services segment for a purchase price of $400 million in cash, subject to certain adjustments set forth in the Purchase Agreement, including a reduction for the remaining outstanding balance as of the closing of Medicare advance payments and deferred payroll tax payments related to the Health Care Services segment, which were $75.2 million and $8.2 million, respectively, as of December 31, 2020. We expect our net cash proceeds at the closing will be approximately $300 million, subject to the timing of closing with respect to the adjustments set forth in the Purchase Agreement. The Purchase Agreement also contains certain agreed upon indemnities for the benefit of the purchaser. The closing of the sale transaction is anticipated to occur in the late first half or early second half of 2021, subject to receipt of applicable regulatory approvals and satisfaction of other customary closing conditions set forth in the Purchase Agreement. Pursuant to the Purchase Agreement, at closing of the transaction, we will retain a 20% equity interest in the business. Upon closing, we expect that the results and financial position of our Health Care Services segment will be deconsolidated from our financial statements and that our interest in the joint venture will be accounted for under the equity method of accounting. We anticipate that the sale transaction will utilize a portion of our federal net operating loss carryforwards to offset the expected taxable gain on such transaction. Transaction Activity and Impact of Dispositions on Results of Operations Overview During 2020, we continued execution on our portfolio optimization initiative through which we have disposed of owned and leased communities and restructured leases. Such activities during 2020 included restructuring our lease arrangements with Ventas announced on July 27, 2020 and closing the multi-part transaction with Healthpeak announced on October 1, 2019. As a result of these initiatives and other lease restructuring, expiration, and termination activity, and other transactions, during the year ended December 31, 2020 we: • Terminated our triple-net lease obligations on an aggregate of 32 communities, including through the acquisition of 27 formerly leased communities; • Disposed of an aggregate of seven owned communities; • Sold substantially all of our remaining ownership interests in unconsolidated ventures, including our entry fee CCRC venture with Healthpeak; and • Reduced our management of communities on behalf of former unconsolidated ventures and third parties, representing a net reduction of 25 managed communities during the year. 53 As of December 31, 2020, we owned 350 communities, representing a majority of our consolidated community portfolio, and leased 301 communities. We also managed 75 communities on behalf of third parties or ventures for which we have an equity interest. The charts below show the foregoing changes in our portfolio from December 31, 2019 to December 31, 2020. During the year ending December 31, 2021, we expect to close on the dispositions of three owned communities (249 units) classified as held for sale as of December 31, 2020 and terminations of a substantial portion of our management arrangements. The closings of the various pending and expected transactions are, or will be, subject to the satisfaction of various closing 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. Summaries of the foregoing transactions, and their impact on our results of operations, are below. See also Note 4 to the consolidated financial statements contained in "Item 8. Financial Statements and Supplementary Data" for more information about the transactions. Completed Dispositions of Owned Communitie s In addition to the conveyance of five communities to Ventas, during the year ended December 31, 2020, described below, we completed the sale of two owned communities (375 units) for cash proceeds of $38.1 million, net of transaction costs. During the year ended December 31, 2019, we completed the sale of 14 owned communities (1,768 units) for cash proceeds of $85.4 million, net of transaction costs. We utilized a portion of the cash proceeds from the asset sales to repay approximately $5.1 million of associated mortgage debt and debt prepayment penalties. 2020 Ventas Lease Restructuring On July 26, 2020 (the "Effective Date"), we entered into definitive agreements with Ventas in connection with the restructuring of our lease arrangements with Ventas, including a Master Transaction Letter Agreement (the "Master Agreement"). Pursuant to the Master Agreement: • On the Effective Date the parties entered into the Amended and Restated Master Lease and Security Agreement (the "Master Lease") and Amended and Restated Guaranty (the "Guaranty"), which amended and restated the prior Master Lease and Security Agreement and prior Guaranty, each dated as of April 26, 2018 and as amended from time to time. Pursuant to the Master Lease, we continue to lease 120 communities (10,174 units) for an aggregate initial annual minimum rent of approximately $100 million, which reflects a reduction of approximately $83 million of annual minimum rent in effect prior to the transaction. Effective on January 1 of each lease year, beginning January 1, 2022, the annual minimum rent will be subject to a 3% escalator. The initial term of the Master Lease ends December 31, 2025, with two 10-year extension options available to us. The annual minimum rent for the initial lease year of any such renewal term will be the greater of the fair market rental of the communities or the increased annual minimum rent for such lease year applying the foregoing 3% escalator. The Master Lease removed the prior provision that would have automatically extended the initial term in the event of the consummation of a change of control transaction by us. The Master Lease 54 requires us to spend (or escrow with Ventas) a minimum of $1,500 per unit on a community-level basis and $3,600 per unit on an aggregate basis of all communities, in each case per 24-month period ending December 31 during the lease term, commencing with the 24-month period ending December 31, 2021. In addition, Ventas agreed to fund costs associated with certain pre-approved capital expenditure projects in the aggregate amount of up to $37.8 million. Upon disbursement of such expenditures, the annual minimum rent under the Master Lease will increase by the amount of the disbursement multiplied by 50% of the sum of the then current 10-year treasury note rate and 4.5%. The transaction agreements with Ventas further provide that the Master Lease and certain other agreements between the parties will be cross-defaulted. Our subsidiaries’ obligations under the Master Lease are guaranteed at the parent level pursuant to the Guaranty. The Guaranty removed the prior requirements that we satisfy, at the parent level, financial covenants and that we maintain a security deposit with Ventas. The Guaranty also removed the prior right of Ventas to terminate the Master Lease on the basis of parent level financial covenants. Pursuant to the terms of the Guaranty, we may consummate a change of control transaction without the need for consent of Ventas so long as certain objective conditions are satisfied, including the post-transaction guarantor’s maintaining a minimum tangible net worth of at least $600.0 million, 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. The Guaranty removed the prior provisions that would have required that such post-transaction guarantor satisfy a maximum leverage ratio level, that we fund additional capital expenditures, and that we extend the term upon the occurrence of the change in control transaction. Under the terms of the Guaranty, commencing January 1, 2024 (and until such time (if any) as we exercise our lease term extension option with respect to the Master Lease), Ventas shall have the right to terminate the Master Lease (with respect to one or more communities), provided that the trailing twelve month coverage ratio of each such community is less than 0.9x and provided further that the removal and termination of any such communities does not result in a portfolio coverage ratio with respect to the remaining communities in the Master Lease that is less than the portfolio coverage ratio prior to such removal and termination. • On the Effective Date, we entered into a Second Amended and Restated Omnibus Agreement with Ventas, which provides that if a default occurs and is continuing under certain other material leases or under certain material financings and if the same continues beyond the permitted cure period or the applicable landlord or lender exercises any material remedies, Ventas shall have the right to transition all or a portion of the communities from the Master Lease to a management arrangement with us pursuant to a market management agreement (which is terminable by either party). Notwithstanding the foregoing, Ventas may only transition one or more communities from the Master Lease to a management arrangement if such transition does not result in a portfolio coverage ratio with respect to the remaining communities in the Master Lease that is less than the portfolio coverage ratio prior to such transition. • On the Effective Date, we conveyed five owned communities (471 units) to Ventas in full release and satisfaction of $78.4 million principal amount of indebtedness secured by the communities. Upon closing, the parties entered into new terminable, market rate management agreements pursuant to which we manage the communities. We also paid to Ventas $115.0 million in cash, released all security deposits to Ventas under the former guaranty (which included the release of a $42.4 million deposit held by Ventas and the payment of $4.2 million in cash as settlement of the amount of letters of credit), and issued a $45.0 million unsecured interest-only promissory note to Ventas. The initial interest rate of the promissory note is 9.0% per annum and will increase by 0.50% on each anniversary of the date of issuance. We may prepay the outstanding principal amount in whole or in part at any time without premium or penalty. The promissory note matures on the earlier of December 31, 2025 or the occurrence of a change of control transaction (as defined in the Guaranty). • On the Effective Date, we issued to Ventas a warrant (the "Warrant") to purchase 16.3 million shares of our common stock, $0.01 par value per share, at a price per share of $3.00. The Warrant is exercisable at Ventas’ option at any time and from time to time, in whole or in part, until December 31, 2025. The exercise price and the number of shares issuable on exercise of the Warrant are subject to certain anti-dilution adjustments, including for cash dividends, stock dividends, stock splits, reclassifications, non-cash distributions, certain repurchases of common stock and business combination transactions. To the extent that the number of shares owned by Ventas (including shares underlying the Warrant) would be more than 9.6% of the total combined voting power of all our classes of capital stock or of the total value of shares of all our classes of capital stock (the "Ownership Cap") (other than as a result of actions taken by Ventas), we would generally be required to repurchase the number of shares necessary to avoid Ventas exceeding the Ownership Cap unless Ventas makes an election to require us to pay Ventas cash in lieu of issuing shares pursuant to the Warrant in excess of the Ownership Cap. The Warrant and the shares issuable upon exercise thereof have not been registered under the Securities Act of 1933, as amended, and were issued in a private placement pursuant to Section 4(a)(2) thereof. On the Effective Date, the parties entered into a Registration Rights Agreement, pursuant to which Ventas and its permitted transferees are entitled to certain registration rights. Pursuant to the terms of the agreement, we filed a shelf registration statement with the SEC with respect to the shares of common stock underlying the Warrant, which was declared effective on August 17, 2020. Ventas is entitled 55 to customary underwritten offering, piggyback, and additional demand registration rights with respect to the shares underlying the Warrant. 2019 Healthpeak CCRC Venture and Master Lease Transactions On October 1, 2019, we entered into definitive agreements, including a Master Transactions and Cooperation Agreement (the "MTCA") and an Equity Interest Purchase Agreement (the "Purchase Agreement"), providing for a multi-part transaction with Healthpeak. The parties subsequently amended the agreements to include one additional entry fee CCRC community as part of the sale of our interest in our unconsolidated entry fee CCRC venture with Healthpeak (the "CCRC Venture") (rather than removing the community from the CCRC Venture for joint marketing and sale). The components of the multi-part transaction included: • CCRC Venture Transaction. Pursuant to the Purchase Agreement, on January 31, 2020, Healthpeak acquired our 51% ownership interest in the CCRC Venture, which held 14 entry fee CCRCs (6,383 units) for a total purchase price of $289.2 million, net of a $5.9 million post-closing net working capital adjustment paid to Healthpeak during the three months ended June 30, 2020 (representing an aggregate valuation of $1.06 billion less portfolio debt, subject to a net working capital adjustment). We recognized a $369.8 million gain on sale of assets for year ended December 31, 2020, and we derecognized the net equity method liability for the sale of the ownership interest in the CCRC Venture. At the closing, the parties terminated the existing management agreements on the 14 entry fee CCRCs, Healthpeak paid us a $100.0 million management agreement termination fee, and we transitioned operations of the entry fee CCRCs to a new operator. We recognized $100.0 million of management fee revenue for the three months ended March 31, 2020 for the management termination fee. The sale of our interest in the CCRC Venture and the $100.0 million of management termination fees generated approximately $579.0 million of taxable income in three months ended March 31, 2020. We will utilize any 2020 operating losses generated and tax loss carryforwards (including our capital loss carryforward that was generated in 2018) to offset the taxable gain on this transaction. Prior to the January 31, 2020 closing, the parties moved the remaining two entry fee CCRCs (889 units) into a new unconsolidated venture on substantially the same terms as the CCRC Venture to accommodate the sale of such two communities. Subsequent to these transactions, we will have exited substantially all of our entry fee CCRC operations. • Master Lease Transactions. Pursuant to the MTCA, on January 31, 2020, the parties amended and restated our existing master lease pursuant to which we continued to lease 25 communities (2,711 units) from Healthpeak, and we acquired 18 formerly leased communities (2,014 units) from Healthpeak, at which time the 18 communities were removed from the master lease. At the closing, we paid $405.5 million to acquire such communities and to reduce our annual rent under the amended and restated master lease. We funded the community acquisitions with $192.6 million of non-recourse mortgage financing and the proceeds from the multi-part transaction. In addition, Healthpeak agreed to terminate the lease for one leased community (159 units), which occurred during December 2020. With respect to the continuing 24 communities (2,552 units), our amended and restated master lease: (i) has an initial term to expire on December 31, 2027, subject to two extension options at our election for ten years each, which must be exercised with respect to the entire pool of leased communities; (ii) the initial annual base rent for the 24 communities is $41.7 million and is subject to an escalator of 2.4% per annum on April 1st of each year; and (iii) Healthpeak agreed to make available up to $35.0 million for capital expenditures for a five-year period related to the 24 communities at an initial lease rate of 7.0%. As a result of the community acquisition transaction, we recognized a $19.7 million gain on debt extinguishment during the year ended December 31, 2020 and derecognized the $105.1 million carrying amount of financing lease obligations for eight communities which were previously subject to sale-leaseback transactions in which we were deemed to have continuing involvement. During March 2020, we obtained $30.0 million of additional non-recourse mortgage financing on the acquired communities. 2018 Welltower Lease and RIDEA Venture Restructuring Pursuant to transactions we entered into with Welltower on June 27, 2018, our triple-net lease obligations on 37 communities (4,095 units) were terminated effective June 30, 2018. We paid Welltower an aggregate lease termination fee of $58.0 million. In addition, effective June 30, 2018, we sold our 20% equity interest in our Welltower RIDEA venture to Welltower for net proceeds of $33.5 million. We also elected not to renew two master leases with Welltower which matured on September 30, 2018 (11 communities; 1,128 units). As of December 31, 2020, we continue to operate 74 communities (3,674 units) under triple-net leases with Welltower, and our remaining lease agreements with Welltower contain an objective change of control standard that allows 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. 56 2018 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 as of such date, including a Master Lease and Security Agreement (the "Former Ventas Master Lease"), which was subsequently amended and restated on July 26, 2020 as described above. The Former Ventas Master Lease amended and restated prior leases comprising an aggregate portfolio of 107 communities (8,459 units) into the Former Ventas Master Lease and Ventas agreed to observe, perform, and enforce separate leases for 21 additional communities (2,107 units) as if they had been combined into the Former 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 provided that the Former Ventas Master Lease and certain other agreements between us and Ventas were subject to cross-default provisions. The Former Ventas Master Lease had an initial term ending December 31, 2025 and provided us with two 10-year extension options. The transaction agreements provided that if we had consummated a change of control transaction on or before December 31, 2025, the initial term of the Former Ventas Master Lease would be extended automatically through December 31, 2029. The Former Ventas Master Lease and separate lease agreements with Ventas, which were guaranteed at the parent level by us, provided 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 received an annual rent credit of $8.0 million in 2019 and an annual rent credit of $7.0 million in 2020, prior to giving effect to the reduction from the agreements on July 26, 2020 as described above. The annual minimum rent was 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 Former Ventas Master Lease required us to spend (or escrow with Ventas) a minimum of $2,000 per unit per 24-month period commencing with the 24-month period ended 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), and provided that if we had consummated a change of control transaction, we would have been required within 36 months 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, were required to satisfy certain financial covenants (including tangible net worth and leverage ratios) and may have consummated a change of control transaction without the need for consent of Ventas so long as certain objective conditions were 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. Pursuant to the Former Ventas Master Lease, we exercised our right to direct Ventas to use its commercially reasonable, diligent efforts to market for sale certain communities. During 2019, seven communities (358 units) were sold by Ventas and removed from the Former Ventas Master Lease, and the annual minimum rent was prospectively reduced by $1.7 million. During 2020, one community (32 units) was sold by Ventas and removed from the Former Ventas Master Lease, and the annual minimum rent was prospectively reduced by $0.1 million. We recognized a $125.7 million non-cash loss on lease modification during the year ended December 31, 2018, primarily for the extensions of the triple-net lease obligations for communities with lease terms that are unfavorable to us given market conditions on the amendment date in exchange for modifications to the change of control provisions and financial covenant provisions of the community leases. Additional Acquisitions Pursuant to Purchase Option On January 22, 2020, we acquired eight formerly leased communities (336 units) from National Health Investors, Inc. pursuant to our exercise of a purchase option for a purchase price of $39.3 million. We funded the community acquisitions with cash on hand. During the three months ended March 31, 2020, we obtained $29.2 million of non-recourse mortgage financing, primarily secured by the acquired communities. On August 31, 2020, we acquired one formerly leased community (103 units) pursuant to our exercise of a purchase option for a purchase price of $25.0 million and funded the acquisition with cash on hand and non-recourse mortgage financing secured by the acquired community. 57 Summary of Financial Impact of Completed Dispositions The following table sets forth, for the periods indicated, the amounts included within our consolidated financial data for the 36 communities that we disposed through sales, conveyances, and lease terminations during the years ended December 31, 2020 and 2019, through the respective disposition dates. Year Ended December 31, 2020 (in thousands) Actual Results Amounts Attributable to Completed Dispositions Actual Results Less Amounts Attributable to Completed Dispositions Resident fees Independent Living $ 512,598 $ — $ 512,598 Assisted Living and Memory Care 1,691,276 14,080 1,677,196 CCRCs 321,883 20,495 301,388 Senior housing resident fees $ 2,525,757 $ 34,575 $ 2,491,182 Facility operating expense Independent Living $ 341,608 $ — $ 341,608 Assisted Living and Memory Care 1,325,260 13,008 1,312,252 CCRCs 287,157 19,997 267,160 Senior housing facility operating expense $ 1,954,025 $ 33,005 $ 1,921,020 Cash lease payments $ 427,711 $ 4,696 $ 423,015 Year Ended December 31, 2019 (in thousands) Actual Results Amounts Attributable to Completed Dispositions Actual Results Less Amounts Attributable to Completed Dispositions Resident fees Independent Living $ 544,558 $ — $ 544,558 Assisted Living and Memory Care 1,815,938 50,775 1,765,163 CCRCs 402,175 64,791 337,384 Senior housing resident fees $ 2,762,671 $ 115,566 $ 2,647,105 Facility operating expense Independent Living $ 340,817 $ — $ 340,817 Assisted Living and Memory Care 1,297,302 43,880 1,253,422 CCRCs 330,103 58,813 271,290 Senior housing facility operating expense $ 1,968,222 $ 102,693 $ 1,865,529 Cash lease payments $ 377,714 $ 9,011 $ 368,703 58 The following table sets forth the number of communities and units in our senior housing segments disposed through sales, conveyances, and lease terminations during the years ended December 31, 2020 and 2019: Years Ended December 31, 2020 2019 Number of communities Assisted Living and Memory Care 10 20 CCRCs 2 4 Total 12 24 Total units Assisted Living and Memory Care 827 1,600 CCRCs 456 827 Total 1,283 2,427 Other Recent Developments Increased Competitive Pressures Data from NIC shows that industry occupancy began to decrease starting in 2016 as a result of new openings and oversupply. During and since 2016, we have experienced an elevated rate of competitive new openings, with significant new competition opening in many markets, which has adversely affected our occupancy, revenues, results of operations, and cash flow. In 2020, competitive new openings remained elevated, but declined from 2019. Beginning in early 2020, the COVID-19 pandemic resulted in additional occupancy pressure for our industry. NIC data shows that senior housing occupancy decreased for three consecutive quarters between March 31, 2020 and December 31, 2020, with nearly all markets falling to record low occupancy by the fourth quarter of 2020. Capital Expenditures Our total community-level capital expenditures were $140.1 million for 2020, which was a decrease of $98.6 million from 2019, and $27.8 million of which was reimbursed by our lessors. The decrease in community-level capital expenditures was partially due to our approximate $48 million reduction to our pre-pandemic full-year 2020 community-level capital expenditure plans as we delayed or canceled a number of elective capital expenditure projects in response to the pandemic. In the aggregate, we expect our full-year 2021 non-development capital expenditures, net of anticipated lessor reimbursements, to be approximately $140 million. In addition, we expect our full-year 2021 development capital expenditures to be approximately $10 million, net of anticipated lessor reimbursements, and such projects include those for expansion, repositioning, redeveloping, and major renovation of selected existing senior living communities. We anticipate that our 2021 capital expenditures will be funded from cash on hand, cash equivalents, marketable securities, cash flows from operations, and reimbursements from lessors. Results of Operations As of December 31, 2020, our total operations included 726 communities with a capacity to serve approximately 64,000 residents. As of that date we owned 350 communities (31,853 units), leased 301 communities (21,129 units), and managed 75 communities (10,129 units). The following discussion should be read in conjunction with our consolidated financial statements and the related notes, which are included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. The results of operations for any particular period are not necessarily indicative of results for any future period. Transactions completed during the period of January 1, 2019 to December 31, 2020 affect the comparability of our results of operations, and summaries of such transactions and their impact on our results of operations are discussed above in "Transaction Activity and Impact of Dispositions on Results of Operations." We use the operating measures described below in connection with operating and managing our business and reporting our results of operations. Our adoption and application of the new lease accounting standard impacted our results for the year ended December 31, 2019 due to our recognition of additional resident fee revenue and facility operating expense, which are non-cash 59 and are non-recurring in years subsequent to December 31, 2019. To aid in comparability between periods, presentations of our results on a same community basis, and RevPAR and RevPOR, exclude the impact of the lease accounting standard. • Senior housing operating results and data presented on a same community basis reflect results and data of a consistent population of communities by excluding the impact of changes in the composition of our portfolio of communities. The operating results exclude hurricane and natural disaster expense and related insurance recoveries, and for the 2019 period, exclude the additional resident fee revenue and facility operating expense recognized as a result of the application of the lease accounting standard ASC 842. We define our same community portfolio as communities consolidated and operational for the full period in both comparison years. Consolidated communities excluded from the same community portfolio include communities acquired or disposed of since the beginning of the prior year, communities classified as assets held for sale, certain communities planned for disposition, certain communities that have undergone or are undergoing expansion, redevelopment, and repositioning projects, and certain communities that have experienced a casualty event that significantly impacts their operations. Our management uses same community operating results and data for decision making, and we believe such results and data provide useful information to investors, because it enables comparisons of revenue, expense, and other operating measures for a consistent portfolio over time without giving effect to the impacts of communities that were not consolidated and operational for the comparison periods, communities acquired or disposed during the comparison periods (or planned for disposition), and communities with results that are or likely will be impacted by completed or in-process development-related capital expenditure projects. As presented herein, same community results include the direct costs incurred to prepare for and respond to the COVID-19 pandemic. • RevPAR , or average monthly senior housing resident fee revenue per available unit, is defined as resident fee revenue for the corresponding portfolio for the period (excluding Health Care Services segment revenue and entrance fee amortization, and, for the 2019 period, the additional resident fee revenue recognized as a result of the application of the lease accounting standard ASC 842), divided by the weighted average number of available units in the corresponding portfolio for the period, divided by the number of months in the period. We measure RevPAR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments. Our management uses RevPAR for decision making, and we believe the measure provides useful information to investors, because the measure is an indicator of senior housing resident fee revenue performance that reflects the impact of both senior housing occupancy and rate. • RevPOR , or average monthly senior housing resident fee revenue per occupied unit, is defined as resident fee revenue for the corresponding portfolio for the period (excluding Health Care Services segment revenue and entrance fee amortization, and, for the 2019 period, the additional resident fee revenue recognized as a result of the application of the lease accounting standard ASC 842), divided by the weighted average number of occupied units in the corresponding portfolio for the period, divided by the number of months in the period. We measure RevPOR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments. Our management uses RevPOR for decision making, and we believe the measure provides useful information to investors, because it reflects the average amount of senior housing resident fee revenue we derive from an occupied unit per month without factoring occupancy rates. RevPOR is a significant driver of our senior housing revenue performance. • Weighted average occupancy rate reflects the percentage of units at our owned and leased communities being utilized by residents over a reporting period. We measure occupancy rates with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments, and also measure this metric both on a consolidated senior housing and a same community basis. Our management uses weighted average occupancy, and we believe the measure provides useful information to investors, because it is a significant driver of our senior housing revenue performance. This section includes the non-GAAP performance measure Adjusted EBITDA. See "Non-GAAP Financial Measures" below for our definition of the measure and other important information regarding such measure, including reconciliations to the most comparable GAAP measures. Discussion of our financial condition and results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019 is presented below. Discussion of our financial condition and results of operations for year ended December 31, 2019 compared to the year ended December 31, 2018 can be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 19, 2020. 60 Comparison of Year Ended December 31, 2020 and 2019 Summary Operating Results The following table summarizes our overall operating results for the years ended December 31, 2020 and 2019. Years Ended December 31, Increase (Decrease) (in thousands) 2020 2019 Amount Percent Total resident fees and management fees revenue $ 3,023,257 $ 3,267,039 (243,782) (7.5) % Other operating income 115,749 — 115,749 NM Facility operating expense 2,341,859 2,390,495 (48,636) (2.0) % Net income (loss) 81,945 (268,492) 350,437 NM Adjusted EBITDA 264,387 401,169 (136,782) (34.1) % The decrease in total resident fees and management fees revenue was primarily attributable to a $317.4 million decrease in resident fees, including a 5.1% decrease in same community RevPAR, comprised of a 680 basis points decrease in same community weighted average occupancy and a 3.2% increase in same community RevPOR. We estimate that the COVID-19 pandemic, including the related restrictions at our communities, resulted in $281.1 million of lost resident fee revenue for the year ended December 31, 2020, including $228.5 million and $52.6 million of lost resident fee revenue in our consolidated senior housing portfolio and Health Care Services segment, respectively. Estimated lost resident fee revenue represents the difference between the actual revenue for the period and our expectations prior to estimating the effects of COVID-19. Additionally, the disposition of 36 communities through sales and conveyances of owned communities and lease terminations since the beginning of the prior year resulted in $81.0 million less in resident fees during the year ended December 31, 2020 compared to the prior year. Revenue for the Health Care Services segment decreased $80.5 million, as our home health average daily census began to decrease in March 2020 due to the COVID-19 pandemic and due to the implementation of the PDGM, an alternate home health case-mix adjustment methodology with a 30 day unit of payment, which became effective beginning January 1, 2020. Management fee revenue increased $73.6 million primarily due to $100.0 million of management fee revenue during the year for the management termination fee payment from Healthpeak, partially offset by terminations of management agreements subsequent to the beginning of the prior year. During the year ended December 31, 2020, we recognized $115.7 million of government grants as other operating income based on our estimates of our satisfaction of the conditions of the grants during the period. The decrease in facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year, which resulted in $69.7 million less in facility operating expense during the year ended December 31, 2020 compared to the prior year. Additionally, there was a decrease in labor costs for home health services as a result of the lower census and as we adjusted our home health services operational structure, to better align our facility operating expenses and business model in connection with PDGM. The decrease was partially offset by a 6.0% increase in same community facility operating expense, which was primarily due to $107.5 million of incremental costs incurred in our same community portfolio during the year ended December 31, 2020 to respond to the COVID-19 pandemic. The increase in same community facility operating expense was partially offset by repairs and maintenance cost decreases due to fewer move-ins during the current year and a decrease in supplies costs due to the reduced occupancy during the current year. In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense of $26.4 million and $49.5 million, respectively, during the year ended December 31, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019. Same community resident fee revenue and facility operating expense excludes approximately $24.1 million and $45.2 million, respectively, of such additional revenue and expenses. The increase in net income was primarily attributable to a $367.3 million increase in net gain on sale of assets, resulting from the sale of our interest in the CCRC Venture, partially offset by the net impact of the revenue, other operating income, and facility operating expense factors previously discussed. The decrease in Adjusted EBITDA was primarily attributable to the net impact of the revenue (including the $100.0 million management agreement termination fee payment received from Healthpeak), other operating income, and facility operating expense factors previously discussed and the $119.2 million one-time cash lease payment made to Ventas in connection with our lease restructuring transaction effective July 26, 2020, partially offset by a decrease in general and administrative expense. 61 Operating Results - Senior Housing Segments The following table summarizes the operating results and data of our three senior housing segments (Independent Living, Assisted Living and Memory Care, and CCRCs) on a combined basis for the years ended December 31, 2020 and 2019 including operating results and data on a same community basis. See management's discussion and analysis of the operating results on an individual segment basis on the following pages. (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) Years Ended December 31, Increase (Decrease) 2020 2019 Amount Percent Resident fees $ 2,525,757 $ 2,762,671 $ (236,914) (8.6) % Other operating income $ 92,862 $ — $ 92,862 NM Facility operating expense $ 1,954,025 $ 1,968,222 $ (14,197) (0.7) % Number of communities (period end) 651 663 (12) (1.8) % Number of units (period end) 52,982 54,181 (1,199) (2.2) % Total average units 53,687 55,501 (1,814) (3.3) % RevPAR $ 3,917 $ 4,106 $ (189) (4.6) % Occupancy rate (weighted average) 77.5 % 83.9 % (640) bps n/a RevPOR $ 5,054 $ 4,893 $ 161 3.3 % Same Community Operating Results and Data Resident fees $ 2,326,529 $ 2,451,352 $ (124,823) (5.1) % Other operating income $ 84,265 $ — $ 84,265 NM Facility operating expense $ 1,781,750 $ 1,680,424 $ 101,326 6.0 % Number of communities 629 629 — — Total average units 49,237 49,232 5 — RevPAR $ 3,938 $ 4,149 $ (211) (5.1) % Occupancy rate (weighted average) 77.8 % 84.6 % (680) bps n/a RevPOR $ 5,063 $ 4,904 $ 159 3.2 % 62 Independent Living Segment The following table summarizes the operating results and data for our Independent Living segment for the years ended December 31, 2020 and 2019, including operating results and data on a same community basis. (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) Years Ended December 31, Increase (Decrease) 2020 2019 Amount Percent Resident fees $ 512,598 $ 544,558 $ (31,960) (5.9) % Other operating income $ 11,823 $ — $ 11,823 NM Facility operating expense $ 341,608 $ 340,817 $ 791 0.2 % Number of communities (period end) 68 68 — — Number of units (period end) 12,534 12,514 20 0.2 % Total average units 12,533 12,474 59 0.5 % RevPAR $ 3,408 $ 3,580 $ (172) (4.8) % Occupancy rate (weighted average) 81.8 % 89.2 % (740) bps n/a RevPOR $ 4,165 $ 4,014 $ 151 3.8 % Same Community Operating Results and Data Resident fees $ 482,200 $ 505,729 $ (23,529) (4.7) % Other operating income $ 10,775 $ — $ 10,775 NM Facility operating expense $ 318,471 $ 307,790 $ 10,681 3.5 % Number of communities 64 64 — — Total average units 11,704 11,695 9 0.1 % RevPAR $ 3,433 $ 3,604 $ (171) (4.7) % Occupancy rate (weighted average) 82.1 % 89.2 % (710) bps n/a RevPOR $ 4,185 $ 4,042 $ 143 3.5 % The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 710 basis points decrease in same community weighted average occupancy and a 3.5% increase in same community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the impact of reduced move-in activity related to the COVID-19 pandemic, including the related restrictions at our communities. We estimate that the COVID-19 pandemic, including the related restrictions at our communities, resulted in $35.9 million of lost resident fee revenue on a same community basis for this segment for the year ended December 31, 2020. The increase in the segment's same community RevPOR was primarily the result of in-place rent increases. The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including $14.7 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic. These increases in the segment's same community facility operating expense were partially offset by decreases in repairs and maintenance costs due to fewer move-ins during the current year and supplies costs due to the reduced occupancy during the current year. We recognized additional resident fee revenue and additional facility operating expense for this segment of $8.7 million and $12.7 million, respectively, during the year ended December 31, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019. Same community resident fee revenue and facility operating expense for this segment excludes approximately $8.2 million and $12.0 million, respectively, of such additional revenue and expenses. 63 Assisted Living and Memory Care Segment The following table summarizes the operating results and data for our Assisted Living and Memory Care segment for the years ended December 31, 2020 and 2019, including operating results and data on a same community basis. (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) Years Ended December 31, Increase (Decrease) 2020 2019 Amount Percent Resident fees $ 1,691,276 $ 1,815,938 $ (124,662) (6.9) % Other operating income $ 62,585 $ — $ 62,585 NM Facility operating expense $ 1,325,260 $ 1,297,302 $ 27,958 2.2 % Number of communities (period end) 563 573 (10) (1.7) % Number of units (period end) 35,126 35,956 (830) (2.3) % Total average units 35,530 36,560 (1,030) (2.8) % RevPAR $ 3,967 $ 4,106 $ (139) (3.4) % Occupancy rate (weighted average) 76.5 % 82.6 % (610) bps n/a RevPOR $ 5,184 $ 4,971 $ 213 4.3 % Same Community Operating Results and Data Resident fees $ 1,632,470 $ 1,705,487 $ (73,017) (4.3) % Other operating income $ 60,939 $ — $ 60,939 NM Facility operating expense $ 1,275,032 $ 1,186,001 $ 89,031 7.5 % Number of communities 551 551 — — Total average units 33,921 33,925 (4) — RevPAR $ 4,010 $ 4,189 $ (179) (4.3) % Occupancy rate (weighted average) 76.8 % 83.3 % (650) bps n/a RevPOR $ 5,222 $ 5,032 $ 190 3.8 % The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 650 basis points decrease in same community weighted average occupancy and a 3.8% increase in same community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the impact of reduced move-in activity related to the COVID-19 pandemic, including the related restrictions at our communities. We estimate that the COVID-19 pandemic, including the related restrictions at our communities, resulted in $137.7 million of lost resident fee revenue on a same community basis for this segment for the year ended December 31, 2020. The increase in the segment's same community RevPOR was primarily the result of in-place rent increases. Additionally, the disposition of 30 communities since the beginning of the prior year resulted in $36.7 million less in resident fees during the year ended December 31, 2020 compared to the prior year. The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including $80.4 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic, and an increase in labor expense arising from increased contract labor costs. The increase in the segment's same community facility operating expense was partially offset by decreases in repairs and maintenance costs due to fewer move-ins during the current year. The increase in the segment's facility operating expense was partially offset by the disposition of communities since the beginning of the prior year, which resulted in $30.9 million less in facility operating expense during the year ended December 31, 2020 compared to the prior year. In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense for this segment of approximately $14.7 million and $31.6 million, respectively, during the year ended December 31, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019. Same community resident fee revenue and facility operating expense for this segment excludes approximately $13.8 million and $29.7 million, respectively, of such additional revenue and expenses. 64 CCRCs Segment The following table summarizes the operating results and data for our CCRCs segment for the years ended December 31, 2020 and 2019, including operating results and data on a same community basis. (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) Years Ended December 31, Increase (Decrease) 2020 2019 Amount Percent Resident fees $ 321,883 $ 402,175 $ (80,292) (20.0) % Other operating income $ 18,454 $ — $ 18,454 NM Facility operating expense $ 287,157 $ 330,103 $ (42,946) (13.0) % Number of communities (period end) 20 22 (2) (9.1) % Number of units (period end) 5,322 5,711 (389) (6.8) % Total average units 5,624 6,467 (843) (13.0) % RevPAR $ 4,738 $ 5,123 $ (385) (7.5) % Occupancy rate (weighted average) 74.2 % 81.3 % (710) bps n/a RevPOR $ 6,389 $ 6,298 $ 91 1.4 % Same Community Operating Results and Data Resident fees $ 211,859 $ 240,136 $ (28,277) (11.8) % Other operating income $ 12,551 $ — $ 12,551 NM Facility operating expense $ 188,247 $ 186,633 $ 1,614 0.9 % Number of communities 14 14 — — Total average units 3,612 3,612 — — RevPAR $ 4,888 $ 5,540 $ (652) (11.8) % Occupancy rate (weighted average) 73.3 % 82.7 % (940) bps n/a RevPOR $ 6,674 $ 6,704 $ (30) (0.4) % The decrease in the segment's resident fees was primarily attributable to the disposition of six communities since the beginning of the prior year, which resulted in $44.3 million less in resident fees during the year ended December 31, 2020 compared to the prior year. Additionally, there was a decrease in the segment's same community RevPAR, comprised of a 940 basis points decrease in same community weighted average occupancy and a 0.4% decrease in same community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the impact of reduced move-in activity related to the COVID-19 pandemic, including the related restrictions at our communities. We estimate that the COVID-19 pandemic, including the related restrictions at our communities, resulted in $36.4 million of lost resident fee revenue on a same community basis for this segment for the year ended December 31, 2020. The decrease in the segment's same community RevPOR was primarily the result of a service mix shift from less skilled nursing services within the segment, partially offset by in-place rent increases. The decrease in the segment's facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year, which resulted in $38.8 million less in facility operating expense during the year ended December 31, 2020 compared to the prior year. The decrease in facility operating expense was partially offset by an increase in the segment's same community facility operating expense, including $12.4 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic, partially offset by decreases in labor expense arising from fewer hours worked and healthcare supplies costs during the period as we intentionally scaled back such costs for the reduced occupancy. In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense for this segment of approximately $3.0 million and $5.3 million respectively, during the year ended December 31, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019. Same community resident fee revenue and facility operating expense for this segment excludes approximately $2.1 million and $3.6 million, respectively, of such additional revenue and expenses. 65 Operating Results - Health Care Services Segment The following table summarizes the operating results and data for our Health Care Services segment for the years ended December 31, 2020 and 2019. (in thousands, except census) Years Ended December 31, Increase (Decrease) 2020 2019 Amount Percent Resident fees $ 366,810 $ 447,260 $ (80,450) (18.0) % Other operating income $ 22,887 $ — $ 22,887 NM Facility operating expense $ 387,834 $ 422,273 $ (34,439) (8.2) % Home health average daily census 13,196 15,447 (2,251) (14.6) % Hospice average daily census 1,658 1,580 78 4.9 % The decrease in the segment's resident fees was primarily attributable to a decrease in revenue for home health services, as our home health average daily census also began to decrease in March 2020 due to the COVID-19 pandemic, which resulted in lower occupancy in our communities and fewer elective medical procedures and hospital discharges. Additionally, the implementation of the PDGM resulted in a decrease in revenue for home health services. We estimate that the COVID-19 pandemic, including the related restrictions at our communities, resulted in $52.6 million of lost resident fee revenue for this segment for the year ended December 31, 2020 . The decrease in the segment's facility operating expense was primarily attributable to a decrease in labor costs for home health services as a result of the lower census and as we adjusted our home health services operational structure, to better align our facility operating expenses and business model in connection with PDGM. The decrease in the segment's facility operating expense was partially offset by $8.2 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic and an increase in labor costs for hospice services arising from wage rate increases and the expansion of our hospice services throughout 2019. As described above, we expect to sell 80% of our equity in our Health Care Services segment pursuant to the Purchase Agreement with HCA Healthcare, which transaction is expected to occur in the late first half or early second half of 2021. Upon closing, we expect that the results and financial position of our Health Care Services segment will be deconsolidated from our financial statements. Operating Results - Management Services Segment The following table summarizes the operating results and data for our Management Services segment for the years ended December 31, 2020 and 2019. (in thousands, except communities and units) Year Ended December 31, Increase (Decrease) 2020 2019 Amount Percent Management fees $ 130,690 $ 57,108 $ 73,582 NM Reimbursed costs incurred on behalf of managed communities $ 401,189 $ 790,049 $ (388,860) (49.2) % Costs incurred on behalf of managed communities $ 401,189 $ 790,049 $ (388,860) (49.2) % Number of communities (period end) 75 100 (25) (25.0) % Number of units (period end) 10,129 18,086 (7,957) (44.0) % Total average units 11,184 21,769 (10,585) (48.6) % The increase in management fees was primarily attributable to $105.0 million of management termination fees recognized for the year ended December 31, 2020, including the $100.0 million management termination fee payment received from Healthpeak during the three months ended March 31, 2020. We received an $8.6 million management termination fee payment during the three months ended December 31, 2020, of which $5.0 million of management fees were recognized for the three 66 months ended December 31, 2020. As of December 31, 2020, we have completed the transition of management arrangements on 130 net communities since the beginning of the prior year, generally for interim management arrangements on former unconsolidated ventures in which we sold our interest and interim management arrangements on formerly leased or owned communities. During 2021, we expect terminations of a substantial portion of our management arrangements. Management fees of $130.7 million for the year ended December 31, 2020 include $104.1 million of management fees attributable to communities for which our management agreements were terminated during such period and approximately $18.0 million of management fees attributable to communities that we expect the terminations of our management agreements to occur (or have occurred) during 2021. The decrease in reimbursed costs and costs incurred on behalf of managed communities was primarily attributable to terminations of management agreements subsequent to the beginning of the prior year. Operating Results - Other Income and Expense Items The following table summarizes other income and expense items in our operating results for the years ended December 31, 2020 and 2019. (in thousands) Years Ended December 31, Increase (Decrease) 2020 2019 Amount Percent General and administrative expense $ 206,575 $ 219,289 $ (12,714) (5.8) % Facility operating lease expense 224,033 269,666 (45,633) (16.9) % Depreciation and amortization 359,226 379,433 (20,207) (5.3) % Asset impairment 107,308 49,266 58,042 117.8 % Loss (gain) on facility lease termination and modification, net (2,303) 3,388 (5,691) NM Interest income 4,799 9,859 (5,060) (51.3) % Interest expense (208,779) (248,341) (39,562) (15.9) % Gain (loss) on debt modification and extinguishment, net 10,896 (5,247) 16,143 NM Equity in earnings (loss) of unconsolidated ventures (2,107) (4,544) (2,437) (53.6) % Gain (loss) on sale of assets, net 374,532 7,245 367,287 NM Other non-operating income (loss) 5,648 14,765 (9,117) (61.7) % Benefit (provision) for income taxes (5,352) 2,269 (7,621) NM General and Administrative Expense. The decrease in general and administrative expense was primarily attributable to a reduction in our travel costs due to the pandemic, a reduction in our corporate headcount, as we scaled our general and administrative costs in connection with community dispositions, and a reduction in our incentive compensation costs. The decrease was partially offset by a $3.4 million increase in transaction and organizational restructuring costs compared to the prior year, to $13.4 million for the year ended December 31, 2020. Transaction costs include those directly related to acquisition, disposition, financing and leasing activity, and stockholder relations advisory matters, and are primarily comprised of legal, finance, consulting, professional fees, and other third party costs. Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance costs. Facility Operating Lease Expense. The decrease in facility operating lease expense was primarily due to the Ventas lease portfolio restructuring during the current year and the acquisition of formerly leased communities and lease termination activity since the beginning of the prior year. Depreciation and Amortization. The decrease in depreciation and amortization expense was primarily due to leasehold improvements for certain leased communities becoming fully depreciated and disposition activity since the beginning of the prior year. Asset Impairment. During the year ended December 31, 2020, we recorded $107.3 million of non-cash impairment charges, primarily for right-of-use assets for certain leased communities with decreased future cash flow estimates as a result of the COVID-19 pandemic. During the prior year we recorded $49.3 million of non-cash impairment charges. See Note 5 to the consolidated financial statements contained in "Item 8. Financial Statements and Supplementary Data" for more information about the impairment charges. 67 Interest Expense. The decrease in interest expense was primarily due to interest expense on long-term debt, reflecting the impact of lower interest rates, and the acquisition of communities previously subject to financing leases since the beginning of the prior year. Gain (Loss) on Debt Modification and Extinguishment, Net. The increase in gain on debt modification and extinguishment was primarily due to a $19.7 million gain on debt extinguishment recognized during the year ended December 31, 2020 for the extinguishment of financing lease obligations for the acquisition from Healthpeak of eight communities which were previously subject to sale-leaseback transactions in which we were deemed to have continuing involvement. Gain (Loss) on Sale of Assets, Net. The increase in gain (loss) on sale of assets, net was primarily due to a $369.8 million gain on sale of assets recognized for the sale of our ownership interest in the CCRC Venture during the year ended December 31, 2020. Benefit (Provision) for Income Taxes. The difference between our effective tax rate for the years ended December 31, 2020 and 2019 was primarily due to the tax impact of the multi-part transaction with Healthpeak that occurred in the three months ended March 31, 2020. The transaction created both federal and state taxable income in the 2020 tax year, requiring the use of all of our federal capital loss carryforwards and a portion of our net operating loss carryforwards reducing the valuation allowance accordingly. This was slightly offset by an increase in state tax expense for the states in which we could not use, or did not have, net operating or capital losses to offset taxable income. We recorded an aggregate deferred federal, state, and local tax expense of $22.1 million for the year ended December 31, 2020. The expense includes $93.1 million as a result of the gain on the sale of our ownership interest in the CCRC Venture, offset by a benefit of $115.2 million as a result of the operating losses (exclusive of the CCRC Venture sale) for the year ended December 31, 2020. The tax expense for the year ended December 31, 2020 is offset by a reduction in valuation allowance of $27.9 million. We recorded an aggregate deferred federal, state, and local tax benefit of $63.0 million as a result of the operating loss for the year ended December 31, 2019, offset by an increase in the valuation allowance of $60.4 million. We evaluate our deferred tax assets each quarter to determine if a valuation allowance is required based on whether it is more likely than not that some portion of the deferred tax asset would not be realized. Our valuation allowance as of December 31, 2020 and December 31, 2019 was $381.0 million and $408.9 million, respectively. We recorded interest charges related to our tax contingency reserve for cash tax positions for the year ended December 31, 2020 and 2019 which are included in provision for income tax for the period. Tax returns for years 2016 through 2019 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 This section includes the non-GAAP liquidity measure Adjusted Free Cash Flow. See "Non-GAAP Financial Measures" below for our definition of the measure and other important information regarding such measure, including reconciliations to the most comparable GAAP measures. 68 Liquidity and Indebtedness The following is a summary of cash flows from operating, investing, and financing activities, as reflected in the consolidated statements of cash flows, and our Adjusted Free Cash Flow: Year Ended December 31, Increase (Decrease) (in thousands) 2020 2019 Amount Percent Net cash provided by (used in) operating activities $ 205,649 $ 216,412 $ (10,763) (5.0) % Net cash provided by (used in) investing activities (425,111) (225,539) 199,572 88.5 % Net cash provided by (used in) financing activities 382,913 (139,394) 522,307 NM Net increase (decrease) in cash, cash equivalents, and restricted cash 163,451 (148,521) 311,972 NM Cash, cash equivalents, and restricted cash at beginning of year 301,697 450,218 (148,521) (33.0) % Cash, cash equivalents, and restricted cash at end of year $ 465,148 $ 301,697 $ 163,451 54.2 % Adjusted Free Cash Flow $ 24,181 $ (76,404) $ 100,585 NM The decrease in net cash provided by operating activities was attributable primarily to $125.5 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic during the current year, decreases in same community revenue and revenue for home health services compared to the prior year, and the $119.2 million one-time cash lease payment made to Ventas in connection with our lease restructuring transaction effective July 26, 2020. These changes were partially offset by $115.7 million of government grants accepted, the $100.0 million management termination fee payment received from Healthpeak, $87.5 million of cash received under the Medicare accelerated and advance payment program, and $72.7 million of the employer portion of social security payroll taxes deferred during the current year. The increase in net cash used in investing activities was primarily attributable to $472.2 million of cash paid for the acquisition of communities during the current year, a $192.0 million increase in purchases of marketable securities compared to the prior year, and a $28.7 million decrease in cash proceeds from notes receivable compared to the prior year. These changes were partially offset by a $238.6 million increase in net proceeds from the sale of assets, a $141.0 million increase in proceeds from sales and maturities of marketable securities, and a $118.2 million decrease in cash paid for capital expenditures compared to the prior year. The change in net cash provided by (used in) financing activities was primarily attributable to a $641.1 million increase in debt proceeds compared to the prior year. This change was partially offset by a $110.9 million increase in repayment of debt and financing lease obligations compared to the prior year and a $12.3 million increase in cash paid during the current year for financing costs. The increase in Adjusted Free Cash Flow was primarily attributable to a $96.2 million decrease in non-development capital expenditures, net compared to the prior year, partially offset by the decrease in net cash provided by operating activities. Our principal sources of liquidity have historically been from: • cash balances on hand, cash equivalents, and marketable securities; • cash flows from operations; • proceeds from our credit facilities; • funds generated through unconsolidated venture arrangements; • proceeds from mortgage financing, refinancing of various assets, or sale-leaseback transactions; • funds raised in the debt or equity markets; and • proceeds from the disposition of assets. Over the longer-term, we expect to continue to fund our business through these principal sources of liquidity. During 2020, we also received cash grants and advanced/accelerated Medicare payments under programs expanded or created under the CARES Act, and we have elected to utilize the CARES Act payroll tax deferral program, each as described above. As described above, we expect to sell 80% of our equity in our Health Care Services segment pursuant to the Purchase Agreement with HCA Healthcare, which transaction is expected to occur in the late first half or early second half of 2021, for expected net cash proceeds of approximately $300 million, subject to the timing of closing with respect to the adjustments set forth in the 69 Purchase Agreement described above. We are evaluating the use of the net proceeds from the pending Health Care Services transaction. Our liquidity requirements have historically arisen from: • working capital; • operating costs such as employee compensation and related benefits, severance costs, general and administrative expense, and supply costs; • debt service and lease payments; • acquisition consideration, lease termination and restructuring costs, and transaction and integration costs; • capital expenditures and improvements, including the expansion, renovation, redevelopment, and repositioning of our current communities and the development of new communities; • cash collateral required to be posted in connection with our financial instruments and insurance programs; • purchases of common stock under our share repurchase authorizations; • other corporate initiatives (including integration, information systems, branding, and other strategic projects); and • prior to 2009, dividend payments. Over the near-term, we expect that our liquidity requirements will primarily arise from: • working capital; • operating costs such as employee compensation and related benefits, severance costs, general and administrative expense, and supply costs, including those related to the COVID-19 pandemic; • debt service and lease payments; • payment of deferred payroll taxes under the CARES Act; • recoupment of payments received under the Accelerated and Advance Payment Program; • acquisition consideration; • transaction costs and expansion of our healthcare services; • capital expenditures and improvements, including the expansion, renovation, redevelopment, and repositioning of our existing communities; • cash collateral required to be posted in connection with our financial instruments and insurance programs; and • other corporate initiatives (including information systems and other strategic projects). We are highly leveraged and have significant debt and lease obligations. As of December 31, 2020, we had $3.9 billion of debt outstanding, at a weighted average interest rate of 3.6%. As of such date, 98.2%, or $3.8 billion, of our total debt obligations represented non-recourse property-level mortgage financings. As of December 31, 2020, $1.4 billion of our long-term debt is variable rate debt subject to interest rate cap agreements. The remaining $128.0 million of our long-term variable rate debt is not subject to any interest rate cap agreements. As of December 31, 2020, $80.7 million of letters of credit had been issued under our secured credit facility and separate secured and unsecured letter of credit facilities and no balance was drawn on our secured credit facility. As of December 31, 2020, we had $1.5 billion of operating and financing lease obligations. For the year ending December 31, 2021, we will be required to make approximately $274.7 million of cash lease payments in connection with our existing operating and financing leases. Total liquidity of $575.5 million as of December 31, 2020 included $380.4 million of unrestricted cash and cash equivalents (excluding restricted cash and lease security deposits of $87.9 million in the aggregate), $172.9 million of marketable securities, and $22.2 million of availability on our secured credit facility. Total liquidity as of December 31, 2020 increased $94.2 million from total liquidity of $481.3 million as of December 31, 2019. The increase was primarily attributable to temporary liquidity relief under the CARES Act, the transactions with Healthpeak completed in 2020, including the impact of the related financing transaction, and proceeds from mortgage debt financing, partially offset by the $119.2 million one-time cash lease payment made to Ventas in connection with our lease restructuring transaction effective July 26, 2020. We continue to seek opportunities to enhance and preserve our liquidity, including through maintaining expense discipline and increasing occupancy, continuing to evaluate our financing structure and the state of debt markets, seeking further government-sponsored financial relief related to the COVID-19 pandemic, and completing the pending sale of 80% of our equity interest in our Health Care Services segment. There is no assurance that debt financing will continue to be available on terms consistent with our expectations or at all, that our efforts will be successful in seeking further government-sponsored financial relief or regarding the amount of, or conditions required to qualify for, any such relief, or that the closing of the pending transaction will be completed in accordance with our expectations, or at all, or generate cash proceeds to us in the amount we anticipate. 70 We currently estimate that our cash flows from operations, including estimates for stabilizing and growing occupancy in 2021, together with cash balances on hand, cash equivalents, marketable securities, amounts available under our secured credit facility, and proceeds from anticipated dispositions of owned communities, and financings and refinancings of various assets, will be sufficient to fund our liquidity needs for at least the next 12 months, assuming the economy and our industry do not further deteriorate substantially as a result of the continuing impacts of the pandemic. Our actual liquidity and capital funding requirements depend on numerous factors, including our operating results, our actual level of capital expenditures, general economic conditions, and the cost of capital, as well as other factors described in "Item 1A. Risk Factors". Disruptions in the financial markets may have an adverse impact on our liquidity by making it more difficult for us to obtain financing or refinancing. Since the amount of mortgage financing available for our communities is generally dependent on their appraised values and performance, decreases in their appraised values, including due to adverse changes in real estate market conditions, or their performance, could result in available mortgage refinancing amounts that are less than the communities’ maturing indebtedness. If we are unable to obtain refinancing proceeds sufficient to cover maturing indebtedness, our liquidity could be adversely impacted and we may seek alternative sources of financing, which may be less attractive or unavailable. Shortfalls in cash flows from estimated operating results or other principal sources of liquidity may have an adverse impact on our ability to fund our planned capital expenditures, or to pursue any acquisition, investment, development, or potential lease restructuring opportunities that we identify, or to fund investments to support our strategy. In order to continue some of these activities at historical or planned levels, we may incur additional indebtedness or lease financing to provide additional funding. There can be no assurance that any such additional financing will be available or on terms that are acceptable to us. 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 and for unit turnovers over $500 per unit) and community renovations, apartment upgrades, and other major building infrastructure projects. Corporate capital expenditures include those for information technology systems and equipment, the expansion of our support platform and healthcare services programs, and the remediation or replacement of assets as a result of casualty losses. Development capital expenditures include community expansions, major community redevelopment and repositioning projects, and the development of new communities. With our development capital expenditures program, we intend to expand, renovate, redevelop, and reposition certain of our communities where economically advantageous. Certain of our communities may benefit from additions and expansions or from adding a new level of service for residents to meet the evolving needs of our customers. These development projects include converting space from one level of care to another, reconfiguration of existing units, the addition of services that are not currently present, or physical plant modifications. The following table summarizes our capital expenditures for the year ended December 31, 2020 for our consolidated business: (in millions) Community-level capital expenditures, net (1) $ 112.3 Corporate capital expenditures, net (2) 27.3 Non-development capital expenditures, net (3) 139.6 Development capital expenditures, net 13.7 Total capital expenditures, net $ 153.3 (1) Reflects the amount invested, net of lessor reimbursements of $27.8 million . (2) Includes $4.1 million of remediation costs at our communities resulting from hurricanes and other natural disasters and for the acquisition of emergency power generators at our impacted Florida communities. (3) Amount is included in Adjusted Free Cash Flow. In response to the COVID-19 pandemic, we delayed or canceled a number of elective capital expenditure projects. As a result, our full-year 2020 non-development capital expenditures, net of lessor reimbursements, and development capital expenditures reflect a $50.4 million and $16.3 million reduction to our pre-pandemic plans for 2020, respectively. 71 In the aggregate, we expect our full-year 2021 non-development capital expenditures, net of anticipated lessor reimbursements, to be approximately $140 million. In addition, we expect our full-year 2021 development capital expenditures to be approximately $10 million, net of anticipated lessor reimbursements, and such projects include those for expansion, repositioning, redeveloping, and major renovation of selected existing senior living communities. We anticipate that our 2021 capital expenditures will be funded from cash on hand, cash equivalents, marketable securities, cash flows from operations, and reimbursements from lessors. Funding our planned capital expenditures, pursuing any acquisition, investment, development, or potential lease restructuring opportunities that we identify, or funding investments to support our strategy may require additional capital. We expect to continue to assess our financing alternatives periodically and access the capital markets opportunistically. If our existing resources are insufficient to satisfy our liquidity requirements, we may need to sell additional equity or debt securities. Any such sale of additional equity securities will dilute the percentage ownership of our existing stockholders, and we cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to us, if at all. Any newly issued equity securities may have rights, preferences, or privileges senior to those of our common stock. If we are unable to raise additional funds or obtain them on terms acceptable to us, we may have to delay or abandon our plans. Credit Facilities On August 31, 2020, we terminated our Fifth Amended and Restated Credit Agreement with Capital One, National Association, as administrative agent, lender, and swingline lender and the other lenders from time to time parties thereto (as amended, the "Credit Agreement"). The Credit Agreement had provided commitments for a $250 million revolving credit facility with a $60 million sublimit for letters of credit and a $50 million swingline feature. The credit facility was secured by first priority mortgages on certain of our communities, and availability varied from time to time based on borrowing base calculations related to the appraised value and performance of the communities securing the credit facility and our consolidated fixed charge coverage ratio. The Credit Agreement was terminated in connection with our obtaining approximately $266.9 million of non-recourse mortgage financing on 16 communities on August 31, 2020, most of which had secured the Credit Agreement prior to its termination. At the closing, we repaid the $166.4 million outstanding principal amount under the Credit Agreement, together with accumulated interest, and without payment of any termination fee or penalty. On December 11, 2020, we entered into a revolving credit agreement with Capital One, National Association, as administrative agent and lender and the other lenders from time to time parties thereto. The agreement provides a commitment amount of $80 million which can be drawn in cash or as letters of credit. The agreement matures on January 15, 2024. Amounts drawn under the facility will bear interest at 30-day LIBOR plus an applicable margin which was 2.75% as of December 31, 2020. Additionally, a quarterly commitment fee of 0.25% per annum was applicable on the unused portion of the facility as of December 31, 2020. The revolving credit facility is currently secured by first priority mortgages and negative pledges on certain of our communities. Available capacity under the facility will vary from time to time based upon borrowing base calculations related to the appraised value and performance of the communities securing the credit facility. As of December 31, 2020, no borrowings were outstanding on the revolving credit facility, $40.4 million of letters of credit were outstanding, and the revolving credit facility had $22.2 million of availability. We also had separate secured and unsecured letter of credit facilities providing for up to $51.6 million of letters of credit as of December 31, 2020 under which $40.3 million had been issued as of that date. Long-Term Leases As of December 31, 2020, we operated 301 communities under long-term leases (235 operating leases and 66 financing leases). The substantial majority of our lease arrangements are structured as master leases. Under a master lease, numerous communities are leased through an indivisible lease. We typically guarantee the performance and lease payment obligations of our subsidiary lessees under the master leases. Due to the nature of such master leases, it is difficult to restructure the composition of our leased portfolios or economic terms of the leases without the consent of the applicable landlord. In addition, an event of default related to an individual property or limited number of properties within a master lease portfolio may result in a default on the entire master lease portfolio. The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or based upon changes in the consumer price index or leased property revenue. We are responsible for all operating costs, including repairs, property taxes, and insurance. As of December 31, 2020, the weighted average remaining lease term of our operating and financing leases was 6.7 and 6.3 years, respectively. The lease terms generally provide for renewal or extension options from 5 to 20 years, and, in some instances, purchase options. 72 The community leases contain other customary terms, which may include assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions, and financial covenants, such as those requiring us to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and lease coverage ratios. In addition, our lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements and maintain insurance coverage. 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 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, develop, or acquire senior housing communities and operating companies. For the year ended December 31, 2020, our cash lease payments for our financing leases and operating leases were $67.4 million and $379.6 million, respectively. For the year ending December 31, 2021, we will be required to make approximately $274.7 million of cash lease payments in connection with our existing financing and operating leases. Debt and Lease Covenants Certain of our debt and lease documents contain restrictions and financial covenants, such as those requiring us to maintain prescribed minimum liquidity, 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 and maintain insurance coverage. 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 December 31, 2020, we are in compliance with the financial covenants of our debt agreements and long-term leases. Derivative Instruments In the normal course of business, we enter into interest rate agreements with major financial institutions to manage our risk above certain interest rates on variable rate debt. As of December 31, 2020, $1.4 billion of our debt is variable rate debt subject to interest rate cap agreements. The remaining $128.0 million of our long-term variable rate debt is not subject to any interest rate cap agreements. 73 Contractual Commitments The following table presents a summary of our material indebtedness, including the related interest payments, lease, and other contractual commitments, as of December 31, 2020. Payments Due during the Year Ending December 31, (in millions) Total 2021 2022 2023 2024 2025 Thereafter Contractual Obligations: Principal on long-term debt (1) $ 3,943.5 $ 73.7 $ 352.4 $ 234.4 $ 304.2 $ 293.0 $ 2,685.8 Interest on long-term debt (2) 885.0 143.3 133.3 121.7 116.4 104.4 265.9 Long-term debt 4,828.5 217.0 485.7 356.1 420.6 397.4 2,951.7 Financing lease obligations (3) 431.3 64.9 65.5 66.3 67.5 57.5 109.6 Operating lease obligations (4) 1,257.2 209.8 192.8 192.4 192.0 190.0 280.2 Total contractual obligations $ 6,517.0 $ 491.7 $ 744.0 $ 614.8 $ 680.1 $ 644.9 $ 3,341.5 (1) Excludes debt discount and deferred financing costs of $27.5 million as of December 31, 2020. (2) Represents contractual interest for all fixed-rate obligations and assumes interest on variable rate instruments at the December 31, 2020 rate. (3) Reflects future cash lease payments after giving effect to fixed payments (including in-substance fixed payments) and variable payments estimated utilizing the applicable index or rate as of December 31, 2020. The cash payments for financing lease obligations exclude $413.4 million of financing lease obligations recognized on our consolidated balance sheet for purchase option liabilities and for sale-leaseback transactions in which we have not transferred control of the underlying asset. (4) Reflects future cash payments after giving effect to fixed payments (including in-substance fixed payments) and variable payments estimated utilizing the applicable index or rate as of December 31, 2020. Our capital expenditure plans for 2021 include required minimum spend of approximately $18 million for capital expenditures under certain of our community leases. Additionally, we are required to spend an average of approximately $26 million per year for each of the following four years and approximately $17 million thereafter under the initial lease terms of such leases. The foregoing amounts exclude outstanding letters of credit aggregating to $80.7 million as of December 31, 2020. Impacts of Inflation Resident fees and management fees are our primary sources of revenue. These revenues are affected by the amount of the monthly resident fee rates we charge and community occupancy rates. The rates charged at communities are highly dependent on local market conditions and the competitive environment in which the communities operate. Substantially all of our senior housing residency agreements allow for adjustments in the monthly fee payable every 12 or 13 months which enables us to seek increases in monthly fees due to inflation, increased levels of care, or other factors. Any pricing increases would be subject to market and competitive conditions and could result in a decrease in occupancy in the communities. We believe, however, that our ability to periodically adjust the monthly fee serves to reduce the adverse effect of inflation. In addition, salaries, wages, and the costs of benefits are a principal element of facility operating expense and are also dependent upon local market conditions and general inflationary pressures. There can be no assurance that monthly resident fee rates can be increased, or that costs will not increase, above inflation rates whether due to inflation or other causes. Increases in prevailing interest rates as a result of inflation or other factors will increase our payment obligations on our variable-rate obligations to the extent they are unhedged and may increase our future borrowing and hedging costs. Although we have interest rate cap agreements in place for a majority of our variable-rate debt, these agreements only limit our exposure to increases in interest rates above certain levels and generally must be renewed every two to three years. As of December 31, 2020, $128.0 million of our outstanding variable-rate indebtedness is not subject to interest rate cap agreements. 74 Off-Balance Sheet Arrangements As of December 31, 2020, we do not have an interest in any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors. We own an interest in certain unconsolidated ventures as described under Note 11 to the consolidated financial statements contained in "Item 8. Financial Statements and Supplementary Data." Except in limited circumstances, our risk of loss is limited to our investment in each venture. The equity method of accounting has been applied in the accompanying financial statements with respect to our investment in unconsolidated ventures. Critical Accounting Estimates The preparation of our financial statements in conformity with accounting principles generally accepted in the United States, or GAAP, requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. We believe the following accounting estimates are the most critical as they require assumptions to be made that were uncertain at the time the estimate was made and changes in the estimate, or different estimates that could have been selected, could have a material impact on our consolidated results of operations or financial condition. These estimates are based on our best judgment about current and future conditions, but actual results could differ from those estimates. Our significant accounting policies are discussed in Note 2 to the consolidated financial statements contained in "Item 8. Financial Statements and Supplementary Data." Long-Lived Asset Impairment As of December 31, 2020, our long-lived assets were comprised primarily of $5.1 billion and $0.8 billion of net property, plant and equipment and leasehold intangibles and operating lease right-of-use assets, respectively. We test long-lived assets for recoverability annually during our fourth quarter or whenever events or changes in circumstances indicate the carrying amount of an asset group may not be recoverable. Recoverability of an asset group is assessed by comparing its carrying amount to the estimated future undiscounted net cash flows expected to be generated by the asset group through operation or disposition, calculated utilizing the lowest level of identifiable cash flows. If this comparison indicates that the carrying amount of an asset group is not recoverable, we are required to recognize an impairment loss. The impairment loss is measured by the amount by which the carrying amount of the asset exceeds its estimated fair value. In estimating the recoverability of asset groups for purposes of our long-lived asset impairment testing, we utilize future cash flow projections that are generally 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 our cash flow projections, we consider our historic operating results, approved budgets and business plans, future demographic factors, expected growth rates, estimated asset holding periods, and other factors. In estimating the future cash flows of asset groups for purposes of our long-lived asset impairment test, we make certain key assumptions. Those assumptions include future revenues, facility operating expenses, and cash flows, including sales proceeds that we would receive upon a sale of the assets using estimated capitalization rates in the case of communities. We corroborate the estimated capitalization rates we use in these calculations with capitalization rates observable from recent market transactions. Determining the future cash flows of an asset group involves the use of significant estimates and assumptions that are unpredictable and inherently uncertain. These estimates and assumptions include revenue and expense growth rates and operating margins used to calculate projected future cash flows. Future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments. Future events that may result in impairment charges include differences in the projected occupancy rates or monthly service fee rates, changes in the cost structure of existing communities, and our decision to dispose of assets, either through sales or lease terminations. Significant adverse changes in our future revenues and/or operating margins, significant changes in the market for senior housing, or the valuation of the real estate of senior living communities, as well as other events and circumstances, including, but not limited to, increased competition and changing economic or market conditions, could result in changes in estimated future cash flows and the determination that additional assets are impaired. During 2020, we evaluated long-lived depreciable assets and lease right-of-use assets and determined that the carrying amount of these assets exceeded the undiscounted cash flows for certain of our communities. Estimated fair values were determined for 75 these certain communities and we recorded asset impairment charges of $29.3 million for property, plant and equipment and leasehold intangibles and $76.3 million for operating lease right-of-use assets during the year ended in December 31, 2020. These impairment charges are primarily due to the COVID-19 pandemic and lower than expected operating performance at these communities and reflect the amount by which the carrying amounts of the assets exceeded their estimated fair value. During 2020, there was a wide range of possible outcomes as a result of the pandemic, as there was a high degree of uncertainty about its ultimate impacts. In arriving at our cash flow projections, we considered our estimates of the impacts of the pandemic. Management’s estimates of the impacts of the pandemic are highly dependent on variables that are difficult to predict, as further described in Note 3 to the consolidated financial statements contained in "Item 8. Financial Statements and Supplementary Data". Future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments. During 2019, we evaluated long-lived depreciable assets and lease right-of-use assets and determined that the undiscounted cash flows exceeded the carrying amount of these assets for all except a small number of communities. Estimated fair values were determined for these certain properties and we recorded asset impairment charges of $27.2 million for property, plant and equipment and leasehold intangibles and $10.2 million for operating lease right-of-use assets during the year ended in December 31, 2019. These impairment charges are primarily due to our decision to dispose of assets, either through sales or lease terminations, or lower than expected performance of the underlying communities and equal the amount by which the carrying amounts of the assets exceed their estimated fair value. During 2018, we evaluated long-lived depreciable assets and determined in each year that the undiscounted cash flows exceeded the carrying amount of these assets for all except a small number of communities. Estimated fair values were determined for these certain properties and we recorded asset impairment charges of $78.0 million for 2018, for property, plant and equipment, and leasehold intangibles. These impairment charges are primarily due to our decision to dispose of assets, either through sales or lease terminations, or lower than expected performance of the underlying communities and equal the amount by which the carrying amount of the assets exceed the estimated fair value. Our impairment loss assessment contains uncertainties because it requires us to apply judgment to estimate whether there have been changes in circumstances that indicate the carrying amount may not be recoverable, the recoverability of asset groups, and, if necessary, the fair value of our assets. As we periodically perform this assessment, changes in our estimates and assumptions may cause us to realize material impairment charges in the future. Although we make every reasonable effort to ensure the accuracy of our estimate of the future cash flows of assets, future changes in the assumptions used to make these estimates could result in the recording of an impairment loss. Goodwill Impairment As of December 31, 2020, we had a goodwill balance of $154.1 million. Goodwill recorded in connection with business combinations is allocated to the respective reporting unit and included in our application of the provisions of ASC 350, Intangibles – Goodwill and Other . We test goodwill for impairment annually during our fourth quarter, or more frequently if indicators of impairment arise. Factors we consider important in our analysis of whether an indicator of impairment exists include a significant decline in our stock price or market capitalization for a sustained period since the last testing date, significant underperformance relative to historical or projected future operating results, and significant negative industry or economic trends. We are not required to calculate the fair value of a reporting unit unless we determine, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The quantitative goodwill impairment test is based upon a comparison of the estimated fair value of the reporting unit to which the goodwill has been assigned with the reporting unit's carrying amount. The fair values used 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. We also consider market-based measures such as earnings multiples in our analysis of estimated fair values of our reporting units. If the quantitative goodwill impairment test results in a reporting unit's carrying amount exceeding its estimated 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. In estimating the fair value of our reporting units for purposes of our quantitative goodwill impairment testing, we utilize the income approach, which includes 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 our cash flow projections, we consider our historic operating results, approved budgets and business plans, future demographic factors, expected revenue and expense growth rates, and other factors, including the COVID-19 pandemic. In using the income approach to estimate the fair value of reporting units for purposes of our goodwill 76 impairment testing, we make certain key assumptions. Those assumptions include future revenues, facility operating expenses, and cash flows, including sales proceeds that we would receive upon a sale of the assets, using estimated capitalization rates in the case of communities. We corroborate the estimated capitalization rates we use 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. Goodwill allocated to our Independent Living and Health Care Services reporting units is $27.3 million and $126.8 million as of December 31, 2020, respectively. Our annual and interim goodwill impairment analyses did not result in any impairment charges during the year ended December 31, 2020. Based on the results of our goodwill impairment analysis, we estimated that the fair value of our Independent Living reporting unit exceeded its carrying amount by approximately 25% as of December 31, 2020. Due to the COVID-19 pandemic, we performed an interim quantitative goodwill impairment analysis as of March 31, 2020, which included reduced estimates of projected future cash flows as a result of changes to significant assumptions using information known or knowable about the COVID-19 pandemic, including current industry and economic trends, changes in business plans, and changes in expected revenue and facility operating expense growth rates. Additionally, we considered the additional risk within the future cash flow estimates when selecting risk-adjusted discount rates. During 2020, there was a wide range of possible outcomes as a result of the COVID-19 pandemic, as there was a high degree of uncertainty about its ultimate impacts. Management’s estimates of the impacts of the pandemic are highly dependent on variables that are difficult to predict, as described above. Future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments. During 2018, we identified qualitative indicators of impairment of our goodwill, including a significant decline in our stock price and market capitalization for a sustained period during the 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 fair value of each reporting unit to which the goodwill has been assigned with the reporting unit's carrying amount. 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 amount of our Assisted Living and Memory Care segment exceeded its estimated fair value by more than the $351.7 million carrying amount of goodwill 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 and Memory Care segment for the three months ended March 31, 2018. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions that are unpredictable and inherently uncertain. These estimates and assumptions include revenue and expense growth rates and operating margins used to calculate projected future cash flows and risk-adjusted discount rates. Future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments. Future events that may result in impairment charges include differences in the projected occupancy rates or monthly service fee rates, changes in the cost structure of existing communities, changes in reimbursement rates from Medicare for healthcare services, and changes in healthcare reform. Significant adverse changes in our future revenues and/or operating margins, significant changes in the market for senior housing or the valuation of the real estate of senior living communities, as well as other events and circumstances, including, but not limited to, increased competition, changes in reimbursement rates from Medicare for healthcare services, and changing economic or market conditions, including market control premiums, could result in changes in fair value and the determination that additional goodwill is impaired. Our impairment loss assessment contains uncertainties because it requires us to apply judgment to estimate whether there has been a decline in the fair value of our reporting units, including estimating future cash flows, and if necessary, the fair value of our assets and liabilities. As we periodically perform this assessment, changes in our estimates and assumptions may cause us to realize material impairment charges in the future. Although we make every reasonable effort to ensure the accuracy of our estimate of the fair value of our reporting units, future changes in the assumptions used to make these estimates could result in the recording of an impairment loss. 77 Self-Insurance Liability Accruals We are subject to various legal proceedings and claims that arise in the ordinary course of our business. Although we maintain general liability and professional liability insurance policies for our owned, leased, and managed communities under a master insurance program, our current policies provide for deductibles for each and every claim. As a result, we are effectively self-insured for claims that are less than the deductible amounts. In addition, we maintain a high-deductible workers compensation program. Third-party insurers are responsible for claim costs above program deductibles and retentions. Outstanding losses and expenses for general liability, professional liability, and workers compensation are estimated based on the recommendations of independent actuaries and management's estimates. The actuarial methods develop estimates of the future ultimate claim costs based on the claims incurred as of the balance sheet date. We review the adequacy of our accruals related to these liabilities on an ongoing basis, using historical claims, actuarial valuations, third-party administrator estimates, consultants, advice from legal counsel, and industry data, and adjust accruals periodically. Estimated costs related to these self-insurance programs are accrued based on known claims and projected claims incurred but not yet reported. These estimates require significant judgment, and as a result these estimates are uncertain and our actual exposure may be different from our estimates. Subsequent changes in actual experience are monitored and estimates are updated as information becomes available. As of December 31, 2020, we accrued reserves of $127.9 million for general liability, professional liability, and workers compensation programs. During the years ended December 31, 2020, 2019, and 2018, we reduced our estimate of the amount of aggregate accrued liabilities for these programs based on recent claims experience, resulting in decreases to operating expenses by $4.2 million, $11.3 million, and $14.6 million, for the years ended December 31, 2020, 2019, and 2018 respectively. New Accounting Pronouncements See Note 2 to the consolidated financial statements contained in "Item 8. Financial Statement and Supplementary Data" for a discussion of new accounting pronouncements. Non-GAAP Financial Measures This Annual Report on Form 10-K contains the financial measures Adjusted EBITDA and Adjusted Free Cash Flow, which are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). Presentations of these non-GAAP financial measures are intended to aid investors in better understanding the factors and trends affecting our performance and liquidity. However, investors should not consider these non-GAAP financial measures as a substitute for financial measures determined in accordance with GAAP, including net income (loss), income (loss) from operations, or net cash provided by (used in) operating activities. We caution investors that amounts presented in accordance with our definitions of these non-GAAP financial measures may not be comparable to similar measures disclosed by other companies because not all companies calculate non-GAAP measures in the same manner. We urge investors to review the following reconciliations of these non-GAAP financial measures from the most comparable financial measures determined in accordance with GAAP. Adjusted EBITDA Adjusted EBITDA is a non-GAAP performance measure that we define as net income (loss) excluding: benefit/provision for income taxes, non-operating income/expense items, and depreciation and amortization; and further adjusted to exclude income/expense associated with non-cash, non-operational, transactional, cost reduction, or organizational restructuring items that management does not consider as part of our underlying core operating performance and that management believes impact the comparability of performance between periods. For the periods presented herein, such other items include non-cash impairment charges, gain/loss on facility lease termination and modification, operating lease expense adjustment, amortization of deferred gain, change in future service obligation, non-cash stock-based compensation expense, and transaction and organizational restructuring costs. Transaction costs include those directly related to acquisition, disposition, financing, and leasing activity, and stockholder relations advisory matters, and are primarily comprised of legal, finance, consulting, professional fees, and other third party costs. Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance. We believe that presentation of Adjusted EBITDA as a performance measure is useful to investors because (i) it is one of the metrics used by our management for budgeting and other planning purposes, to review our historic and prospective core operating performance, and to make day-to-day operating decisions; (ii) it provides an assessment of operational factors that management can impact in the short-term, namely revenues and the controllable cost structure of the organization, by eliminating items related to our financing and capital structure and other items that management does not consider as part of our underlying core operating performance and that management believes impact the comparability of performance between 78 periods; and (iii) we believe that this measure is used by research analysts and investors to evaluate our operating results and to value companies in our industry. Adjusted EBITDA has material limitations as a performance measure, including: (i) excluded interest and income tax are necessary to operate our business under our current financing and capital structure; (ii) excluded depreciation, amortization, and impairment charges may represent the wear and tear and/or reduction in value of our communities, goodwill, and other assets and may be indicative of future needs for capital expenditures; and (iii) we may incur income/expense similar to those for which adjustments are made, such as gain/loss on sale of assets, facility lease termination and modification, or debt modification and extinguishment, non-cash stock-based compensation expense, and transaction and other costs, and such income/expense may significantly affect our operating results. The table below reconciles Adjusted EBITDA from net income (loss). Years Ended December 31, (in thousands) 2020 2019 Net income (loss) $ 81,945 $ (268,492) Provision (benefit) for income taxes 5,352 (2,269) Equity in (earnings) loss of unconsolidated ventures 2,107 4,544 Loss (gain) on debt modification and extinguishment, net (10,896) 5,247 Loss (gain) on sale of assets, net (374,532) (7,245) Other non-operating (income) loss (5,648) (14,765) Interest expense 208,779 248,341 Interest income (4,799) (9,859) Income (loss) from operations (97,692) (44,498) Depreciation and amortization 359,226 379,433 Asset impairment 107,308 49,266 Loss (gain) on facility lease termination and modification, net (2,303) 3,388 Operating lease expense adjustment (136,276) (19,453) Non-cash stock-based compensation expense 20,747 23,026 Transaction and organizational restructuring costs 13,377 10,007 Adjusted EBITDA (1) $ 264,387 $ 401,169 (1) Adjusted EBITDA includes: • $115.7 million benefit for the year ended December 31, 2020 of Provider Relief Funds and other government grants recognized in other operating income • $119.2 million for the year ended December 31, 2020 for the one-time cash lease payment made to Ventas in connection with our lease restructuring transaction effective July 26, 2020 • $100.0 million benefit for the year ended December 31, 2020 for the management agreement termination fee payment received from Healthpeak • $23.1 million of negative non-recurring net impact for the year ended December 31, 2019 from the application of the lease accounting standard effective January 1, 2019 Adjusted Free Cash Flow Adjusted Free Cash Flow is a non-GAAP liquidity measure that we define as net cash provided by (used in) operating activities before: distributions from unconsolidated ventures from cumulative share of net earnings, changes in prepaid insurance premiums financed with notes payable, changes in operating lease liability for lease termination, cash paid/received for gain/loss on facility lease termination and modification, and lessor capital expenditure reimbursements under operating leases; plus: property insurance proceeds and proceeds from refundable entrance fees, net of refunds; less: non-development capital expenditures and payment of financing lease obligations. Non-development capital expenditures are comprised of corporate and community-level capital expenditures, including those related to maintenance, renovations, upgrades, and other major building infrastructure projects for our communities and is presented net of lessor reimbursements. Non-development capital expenditures do not include capital expenditures for: community expansions, major community redevelopment and repositioning projects, and the development of new communities. 79 We believe that presentation of Adjusted Free Cash Flow as a liquidity measure is useful to investors because (i) it is one of the metrics used by our management for budgeting and other planning purposes, to review our historic and prospective sources of operating liquidity, and to review our ability to service our outstanding indebtedness, pay dividends to stockholders, engage in share repurchases, and make capital expenditures, including development capital expenditures; and (ii) it provides an indicator to management to determine if adjustments to current spending decisions are needed. Adjusted Free Cash Flow has material limitations as a liquidity measure, including: (i) it does not represent cash available for dividends, share repurchases, or discretionary expenditures since certain non-discretionary expenditures, including mandatory debt principal payments, are not reflected in this measure; (ii) the cash portion of non-recurring charges related to gain/loss on facility lease termination generally represent charges/gains that may significantly affect our liquidity; and (iii) the impact of timing of cash expenditures, including the timing of non-development capital expenditures, limits the usefulness of the measure for short-term comparisons. The table below reconciles Adjusted Free Cash Flow from net cash provided by (used in) operating activities. Years Ended December 31, (in thousands) 2020 2019 Net cash provided by (used in) operating activities $ 205,649 $ 216,412 Net cash provided by (used in) investing activities (425,111) (225,539) Net cash provided by (used in) financing activities 382,913 (139,394) Net increase (decrease) in cash, cash equivalents, and restricted cash $ 163,451 $ (148,521) Net cash provided by (used in) operating activities $ 205,649 $ 216,412 Distributions from unconsolidated ventures from cumulative share of net earnings (766) (3,472) Changes in assets and liabilities for lessor capital expenditure reimbursements under operating leases (22,242) (31,305) Non-development capital expenditures, net (139,592) (235,797) Payment of financing lease obligations (18,868) (22,242) Adjusted Free Cash Flow $ 24,181 $ (76,404) (1) Adjusted Free Cash Flow includes transaction and organizational restructuring costs of $13.4 million and $10.0 million for the years ended December 31, 2020 and 2019, respectively. Additionally, Adjusted Free Cash Flow for the year ended December 31, 2020 includes: • $115.7 million benefit from Provider Relief Funds and other government grants accepted • $119.2 million one-time cash lease payment made to Ventas in connection with our lease restructuring transaction effective July 26, 2020 • $100.0 million benefit from the management agreement termination fee payment received from Healthpeak • $ 87.5 million benefit from accelerated/advanced Medicare payments received • $ 72.7 million benefit from payroll taxes deferred