10-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-K/A

(Amendment No. 1)

(Mark One)
[ x ]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________

Commission File Number  001-10822

National Health Investors, Inc.

(Exact name of registrant as specified in its charter)

Maryland	62-1470956
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
222 Robert Rose Drive, Murfreesboro, Tennessee	37129
(Address of principal executive offices)	(Zip Code)

(615) 890-9100

(Registrant’s telephone number, including area code)

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

Title of each Class	Name of each exchange on which registered
Common stock, $.01 par value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ x ] No [ ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [ x ]

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes [ x ] No [ ]

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

Large accelerated filer          [ x ]	Accelerated filer                      [ ]
Non-accelerated filer            [ ]	Smaller reporting company     [ ]
(Do not check if a smaller reporting company)

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

The aggregate market value of shares of common stock held by non-affiliates on June 30, 2015 (based on the closing price of these shares on the New York Stock Exchange) was approximately $2,238,337,000. There were 38,400,276 shares of the registrant’s common stock outstanding as of February 16, 2016.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive proxy statement for its 2015 annual meeting of stockholders are incorporated by reference into Part III, Items 10, 11, 12, 13, and 14 of this Form 10-K/A.

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A (the “Amendment”) is filed by National Health Investors, Inc. ("NHI" or the “Company”) to amend its Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 Form 10-K”). The purpose of the Amendment is to amend Part IV, Item 15 of the 2015 Form 10-K. No other items of the 2015 Form 10-K are amended in this Form 10-K/A.

PART IV

ITEM 15.  Exhibits, Financial Statements and Financial Statement Schedules

Item 15 has been amended to include the audited financial statements of Holiday AL Holdings, LP, the parent of NH Master Tenant, LLC ("Holiday Tenant"), and guarantor of Holiday Tenant's obligations arising under their lease with us.  Holiday Tenant is a significant lessee to NHI and, as of December 31, 2015, leases more than 20% of our assets.

Additionally, Item 15 has been amended to include the audited financial statements of Senior Living Communities, LLC. Senior Living Communities, LLC is a significant lessee to NHI and, as of December 31, 2015, leases more than 20% of our assets.

As required by Rule 12b-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), updated certifications by the Principal Executive Officer and Principal Financial Officer are filed as exhibits to the Amendment in Part IV, Item 15.

We make no attempt in this filing to update matters in the 2015 Form 10-K for any other activities or events occurring after the original filing date; neither do we change any previously reported financial results of operations or any disclosures contained in that document except to the extent expressly provided herein.

EXHIBIT INDEX
Exhibit No.	Description	Page No. or Location
23.2	Consent of Ernst & Young LLP.	Filed Herewith
23.3	Consent of Moyer, Smith & Roller, P.A.	Filed Herewith
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer	Filed Herewith
31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer and Principal Accounting Officer	Filed Herewith
32	Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive Officer and Principal Financial Officer and Principal Accounting Officer	Filed Herewith
99.1	Holiday AL Holdings LP Financial Statements as of December 31, 2015 and 2014 and for the three years ended December 31, 2015.	Filed herewith
99.2	Senior Living Communities, LLC and Subsidiaries Financial Statements as of December 31, 2015 and 2014 and for the three years ended December 31, 2015.	Filed herewith

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	NATIONAL HEALTH INVESTORS, INC.
	By: /s/Roger R. Hopkins
	Roger R. Hopkins
	Chief Accounting Officer
Date: February 26, 2016	(Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

EX-23.2

Exhibit 23.2

Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statements (Form S-3 Nos. 333-192338 and 333-194653 and on Form S-8 Nos. 333-186854 and 333-127179) of National Health Investors, Inc. of our report dated February 19, 2016, with respect to the consolidated financial statements of Holiday AL Holdings LP as of December 31, 2015 and 2014 and for each of the three years in the period ended December 31, 2015, included in this Annual Report on Form 10-K, as amended (Form 10-K/A).

/s/ Ernst & Young LLP

Chicago, Illinois

February 26, 2016

EX-23.3

Exhibit 23.3

Consent of Independent Auditor

We consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-192338 and No. 333-194653) and on Form S-8 (No. 333-127179 and No. 333-186854) of National Health Investors, Inc. of our report dated February 15, 2016, with respect to the consolidated financial statements of Senior Living Communities, LLC as of December 31, 2015 and 2014 and for each of the three years in the period ended December 31, 2015, included in this Annual Report on Form 10-K, as amended (Form 10-K/A).

/s/ Moyer, Smith & Roller, P.A.

Charlotte, North Carolina

February 26, 2016

EX-31.1

EXHIBIT 31.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES OXLEY-ACT OF 2002
I, Eric Mendelsohn, certify that:
1.	I have reviewed this Amendment 1 to the annual report on Form 10-K of National Health Investors, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
		a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
		b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
		c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
		d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
		a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
		b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: February 26, 2016				/s/ Eric Mendelsohn
				Eric Mendelsohn
				President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES OXLEY-ACT OF 2002
I, Roger R. Hopkins, certify that:
1.	I have reviewed this Amendment 1 to the annual report on Form 10-K of National Health Investors, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
		a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
		b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
		c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
		d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
		a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
		b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: February 26, 2016				/s/ Roger R. Hopkins
				Roger R. Hopkins
				Chief Accounting Officer
				(Principal Financial Officer and Principal Accounting Officer)

EX-32

Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES OXLEY-ACT OF 2002
The undersigned hereby certify, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, that, to the undersigned’s best knowledge and belief, the Amendment 1 to Annual Report on Form 10-K for National Health Investors, Inc. (“Issuer”) for the period ended December 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”):
(a)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.
Date: February 26, 2016		/s/ Eric Mendelsohn
		Eric Mendelsohn President, Chief Executive Officer and Director
Date: February 26, 2016		/s/ Roger R. Hopkins
		Roger R. Hopkins
		Chief Accounting Officer
		(Principal Financial Officer and Principal Accounting Officer)

EX-99.1

Exhibit 99.1

CONSOLIDATED FINANCIAL STATEMENTS

Holiday AL Holdings LP

Years Ended December 31, 2015, 2014 and 2013

With Report of Independent Auditors

Holiday AL Holdings LP

Consolidated Financial Statements

Years Ended December 31, 2015, 2014 and 2013

Contents

Report of Independent Auditors	1
Consolidated Financial Statements
Consolidated Balance Sheets	2
Consolidated Statements of Operations	3
Consolidated Statements of Changes in Equity	4
Consolidated Statements of Cash Flows	5
Notes to Consolidated Financial Statements	6

Report of Independent Auditors

The Partners

Holiday AL Holdings LP

We have audited the accompanying consolidated financial statements of Holiday AL Holdings LP (the Partnership), which comprise the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of operations, changes in equity and cash flows for each of the three years in the period ended December 31, 2015, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Partnership at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015 in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Ernst & Young LLP

Chicago, Illinois

February 19, 2016

1

Holiday AL Holdings LP
Consolidated Balance Sheets
(In Thousands)
	December 31			December 31
	2015			2,014
Assets
Investment in real estate
Land and land improvements	$	40,350			$	40,312
Building and building improvements	267,610				265,637
Equipment	53,296				33,993
	361,256				339,942
Less accumulated depreciation	(84,379		)		(70,503		)
	276,877				269,439
Cash and cash equivalents	9,357				24,302
Cash and escrow deposits – restricted	1,096				1,174
Landlord required deposits	115,811				119,054
Accounts receivable, net	441				700
Prepaid expenses and other assets, net	39,609				20,644
Resident lease and other intangible assets, net	1,870				1,930
Total assets	$	445,061			$	437,243
Liabilities and equity
Accounts payable and accrued expenses	$	51,852			$	29,970
Prepaid rent and deferred revenue	20,874				15,805
Tenant security deposits	2,970				3,623
Straight-line rent payable	106,736				55,873
Due to affiliate	10,731				22,127
Total liabilities	193,163				127,398
Equity:
Partnership	270,773				309,845
Non-controlling interest	(18,875		)		–
Total Equity	251,898				309,845
Total liabilities and equity	$	445,061			$	437,243
See accompanying notes to consolidated financial statements.

2

Holiday AL Holdings LP
Consolidated Statements of Operations
(In Thousands)
	Years Ended December 31
	2015			2014			2013
Revenue
Resident fees	$	463,961		$	412,055		$	89,246
Management fees	36,176			753			183
Total revenue	$	500,137		$	412,808		$	89,429
Expenses
Facility operating expenses	243,072			205,223			44,899
General and administrative expenses	74,443			32,255			3,602
Lease expense	234,521			205,623			20,903
Depreciation and amortization	13,681			10,174			8,298
Total expenses	565,717			453,275			77,702
Operating (loss) income	(65,580		)	(40,467		)	11,727
Interest expense:
Interest incurred	—			—			(13,000		)
Amortization of deferred loan fees	—			—			(366		)
Loss on mortgage notes payable	—			—			(5,983		)
Net loss	(65,580		)	(40,467		)	(7,622		)
Net loss attributable to non-controlling interest	(18,875		)	—			—
Net loss attributable to the Partnership	$	(46,705	)	$	(40,467	)	$	(7,622	)
See accompanying notes to consolidated financial statements.

3

Holiday AL Holdings LP
Consolidated Statements of Changes in Equity
For the Years Ended December 31, 2015, 2014 and 2013
(In Thousands)
							Non-
	General			Limited			controlling			Total
	Partners			Partners			Interest			Equity
Balance at January 1, 2013	$	439		$	43,511		$	—		$	43,950
Net loss	(76		)	(7,546		)	—			(7,622		)
Contributions	3,231			319,835			—			323,066
Balance at December 31, 2013	3,594			355,800			—			359,394
Net loss	(405		)	(40,062		)	—			(40,467		)
Contributions	58			5,704			—			5,762
Distributions	(149		)	(14,695		)	—			(14,844		)
Balance at December 31, 2014	3,098			306,747			—			309,845
Net loss	(467		)	(46,238		)	(18,875		)	(65,580		)
Contributions	184			18,260			—			18,444
Distributions	(108		)	(10,703		)	—			(10,811		)
Balance at December 31, 2015	$	2,707		$	268,066		$	(18,875	)	$	251,898
See accompanying notes to consolidated financial statements.

4

Holiday AL Holdings LP
Consolidated Statements of Cash Flows
(In Thousands)
	Years Ended December 31
	2015			2014			2013
Operating activities
Net loss	$	(65,580	)	$	(40,467	)	$	(7,622	)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization	13,681			10,174			8,298
Amortization of deferred loan costs	–			—			366
Amortization of resident incentives	948			1,335			1,486
Straight-line rent expense	50,863			51,043			4,830
Amortization of community fees	(7,404		)	(3,139		)	(580		)
Changes in operating assets and liabilities:
Cash and escrow deposits – restricted	78			46			1,930
Landlord required deposits	3,243			(13,937		)	(105,117		)
Accounts receivable	259			89			(542		)
Prepaid expenses and other assets	(19,983		)	(1,435		)	(15,739		)
Accounts payable and accrued expenses	20,991			7,344			6,695
Prepaid rent and deferred revenue	12,473			12,954			3,923
Tenant security deposits	(653		)	(334		)	1,132
Net cash provided by (used in) by operating activities	8,916			23,673			(100,940		)
Investing activities
Additions to investment in real estate	(20,098		)	(16,808		)	(3,425		)
Cash used in investing activities	(20,098		)	(16,808		)	(3,425		)
Financing activities
Repayment of principal on mortgage notes payable	—			—			(234,319		)
Distributions	(261		)	(14,844		)	—
Contributions	—			5,762			338,221
Due (from) to affiliate	(3,502		)	21,898			2,875
Net cash (used in) provided by financing activities	(3,763		)	12,816			106,777
Net (decrease) increase in cash and cash equivalents	(14,945		)	19,681			2,412
Cash and cash equivalents at beginning of year	24,302			4,621			2,209
Cash and cash equivalents at end of year	9,357			24,302			4,621
Supplemental disclosure of cash flow information
Cash paid for interest	$	—		$	—		$	14,040
Supplemental disclosure of non-cash information
Non-cash operating activities:
Assumption of assets and related liabilities:
Accounts payable and accrued expenses	$	—		$	(2,320	)	$	(12,272	)
Tenant security deposits	—			—			(1,901		)
Prepaid rent	—			—			(1,170		)
Cash and escrow deposits - restricted	—			83			188
Prepaid expenses and other assets	—			401			—
Non-cash financing activities:
Distributions	$	(10,550	)	—			—
Contributions	18,444			—			—
Due (from) to affiliate	(7,894		)	—			—
See accompanying notes to consolidated financial statements.

5

Holiday AL Holdings LP

Notes to Consolidated Financial Statements (continued)

(In Thousands)

December 31, 2015

1. Formation and Description of Operations

Holiday AL Holdings LP (HAHLP or the Partnership), a Delaware limited partnership, is the owner and operator of assisted living and independent living facilities in the United States. As of December 31, 2015, the Partnership, directly or indirectly through its ownership entities, owned or leased 131 assisted living communities and independent living communities consisting of 16,364 apartment and townhouse units (unaudited), located in 41 states (unaudited).

Properties	Communities	Units
Owned communities	8	1,673
Leased communities	123	14,691

The “Owned Communities” are accounted for under the consolidation method of accounting and are reflected as investment in real estate.

The “Leased Communities” are accounted for as operating leases, pursuant to Accounting Standards Codification (ASC) 840, Leases.

The Partnership is owned by Holiday AL Acquisition, LLC (Holiday Acquisition, a limited liability company and a wholly owned subsidiary of investment funds managed by affiliates of Fortress Investment Group LLC), Holiday AL Holdings GP LLC (Holiday AL GP - the general partner and a wholly owned subsidiary of Holiday Acquisition), and Retained Interest LLC (Retained Interest - which is wholly owned by previous investors of Holiday Retirement).

In 2015, the members and affiliates of Holiday Acquisition decided to utilize the Partnership as the operating and administrative platform to provide management services through a partially owned subsidiary, Holiday AL Management Sub, LLC (Management Company) (see Note 7). To effectuate this Harvest Facility Holdings LP (Harvest) transferred most of its employees to the Management Company, of which the Partnership owns a 51% ownership interest. During 2015 the Management Company entered into various agreements to provide management, leasing, and general and administrative services to the Partnership, Harvest and other third parties. Harvest is also owned by investment funds managed by affiliates of Fortress Investment Group LLC (see Note 10).

6

Holiday AL Holdings LP

Notes to Consolidated Financial Statements (continued)

(In Thousands)

2. Summary of Significant Accounting Policies

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

Principles of Consolidation

The consolidated financial statements represent the Partnership’s financial condition and results of operations and those of its subsidiaries. Properties and other subsidiaries which are wholly owned, controlled by the Partnership or variable-interest entities in which the Partnership is the primary beneficiary are consolidated. The Partnership has an interest in one variable-interest entity for which it is considered to be the primary beneficiary (see Note 7). All intercompany transactions and balances have been eliminated in consolidation.

Non-controlling Interests

A non-controlling interest in a subsidiary is generally an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements and separate from the parent company’s equity. In addition, consolidated net (loss) income is required to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest and the amount of consolidated net (loss) income attributable to the parent and the non-controlling interest are required to be disclosed on the face of the consolidated statements of operations (see Note 7).

Reclassifications

Certain reclassifications considered necessary for a fair presentation have been made to the prior period financial statements in order to conform to the current year presentation. These reclassifications have not changed the results of operations or financial position of the Partnership.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, the allocation of purchase price to tangible and intangible assets and liabilities, the evaluation of asset impairments, insurance reserves, depreciation and amortization, allowance for doubtful accounts, and other contingencies. Actual results could differ from those estimates and assumptions.

7

Holiday AL Holdings LP

Notes to Consolidated Financial Statements (continued)

(In Thousands)

2. Summary of Significant Accounting Policies (continued)

Investment in Real Estate and Related Intangibles

In business combinations, the Partnership recognizes all assets acquired and liabilities assumed in a transaction at the acquisition-date fair value. In addition, the Partnership is required to expense acquisition-related costs as incurred, value non-controlling interests at fair value at the acquisition date and expense restructuring costs associated with an acquired business.

The Partnership allocates the purchase price of properties to net tangible and identified intangible assets acquired based on their fair values. In making estimates of fair values for purposes of allocating purchase price, the Partnership utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, own internal analysis of recently acquired and existing comparable properties in our portfolio and other market data. The Partnership also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired.

Identified net tangible and finite lived intangible assets are amortized over their estimated useful lives or contractual lives, which are as follows:

Asset Categories	Estimated Useful Life (In Years)
Building and building improvements	15-40
Land improvements	15
Equipment	3-15
Resident lease intangibles	3-40

8

Holiday AL Holdings LP

Notes to Consolidated Financial Statements (continued)

(In Thousands)

2. Summary of Significant Accounting Policies (continued)

Expenditures for ordinary maintenance and repairs are expensed to operations as incurred. Renovations and upgrades that improve and/or extend the life of the assets are capitalized and depreciated over their estimated useful lives. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets held for use is assessed by a comparison of the carrying amount of the asset to the estimated future undiscounted net cash flows expected to be generated by the asset. If estimated future undiscounted net cash flows are less than the carrying amount of the asset, then the fair value of the asset is estimated. The impairment expense is determined by comparing the estimated fair value of the asset to its carrying value, with any excess of carrying value over fair value recognized as an expense in the current period.

During the years ended December 31, 2015, 2014 and 2013, the Partnership evaluated all long-lived depreciable assets for indicators of impairment, noting none. As a result, no impairment charges were recorded on the Partnership’s long-lived assets.

Property sales or dispositions are recorded when title transfers to unrelated third parties, contingencies have been removed and sufficient cash consideration has been received by the Partnership. Upon disposition, the related costs and accumulated depreciation are removed from the respective accounts and any gain or loss on sale is recognized.

Leases

Leases for which we are the lessee are accounted for as operating, capital, or financing leases based on the underlying terms. The classification criteria are based on estimates regarding the fair value of the leased communities, minimum lease payments, effective cost of funds, the economic life of the community, and certain other terms in the respective lease agreements. Communities under operating leases are not included in investment in real estate in the consolidated balance sheets.

The Partnership accounts for leases with rent holiday provisions or that contain fixed payment escalators on a straight-line basis as if the lease payments were fixed evenly over the life of each lease. Straight-line rent payable in the consolidated balance sheets represents the difference between straight line rent expense and the rent that is contractually due during the period. The Partnership capitalizes out-of-pocket costs incurred to enter into lease contracts as lease acquisition costs and amortizes them over the lives of the respective leases as additional community lease expense.

9

Holiday AL Holdings LP

Notes to Consolidated Financial Statements (continued)

(In Thousands)

2. Summary of Significant Accounting Policies (continued)

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid short-term investments with original maturities of three months or less from the date of purchase.

Landlord Required Deposits

Landlord required deposits consist primarily of funds required by various landlords to be placed on deposit as security for the Partnership’s performance under lease agreements and will generally be held until lease termination. A summary is as follows:

	December 31
		2015		2014
Security deposits		$	112,404	$	112,404
Property tax and reserves		3,407		6,650
Total landlord required deposits		$	115,811	$	119,054

Allowance for Doubtful Accounts

Allowance for doubtful accounts are recorded by management based upon the Partnership’s historical write-off experience, analysis of accounts receivable aging, and historic resident payment trends.

Management reviews material past due balances on a monthly basis. Account balances are charged off against the allowance when management determines it is probable that the receivable will not be recovered. Allowance for doubtful accounts was $394 and $564 at December 31, 2015 and 2014, respectively.

10

Holiday AL Holdings LP

Notes to Consolidated Financial Statements (continued)

(In Thousands)

2. Summary of Significant Accounting Policies (continued)

Deferred Loan Costs

Deferred loan costs include direct costs to obtain financing. Such costs are deferred and amortized using the straight-line method, which approximates the effective interest method, over the terms of the underlying debt agreements.

Revenue Recognition

Resident fee revenue is recorded as it becomes due as provided for in the residents’ lease agreements. Residents’ agreements are generally for a term of 30 days with resident fees due monthly in advance.

Certain communities have residency agreements that require the resident to pay an upfront fee prior to occupying the community. Community fees are non-refundable after a stated period (typically 90 days) and are initially recorded as deferred revenue and recognized on a straight-line basis as part of resident fee revenue over an estimated three-year average stay of the residents in the communities. Deferred revenue totaled $16,834 and $11,110 at December 31, 2015 and 2014, respectively.

Certain residency agreements provide for free rent or incentives for a stated period of time. Incentives are initially recorded in other assets and recognized on a straight-line basis as a reduction of resident fee revenue over an estimated three-year average stay of the residents in the communities.

Income Taxes

The Partnership is not subject to federal income tax and therefore does not record a provision for federal income tax. Each partner is allocated their respective share of income and pays the related tax. The Partnership is subject to certain state and local income tax in a few jurisdictions and has provided for those taxes.

Advertising Costs

The Partnership expenses advertising costs as incurred. Advertising costs were $6,233, $5,493 and $691 for the periods ended December 31, 2015, 2014 and 2013, respectively, and are included in facility operating expenses in the consolidated statements of operations.

11

Holiday AL Holdings LP

Notes to Consolidated Financial Statements (continued)

(In Thousands)

2. Summary of Significant Accounting Policies (continued)

General and Administrative Expenses

On January 1, 2015, the Management Company entered into an agreement to provide property management services as an independent contractor to Harvest in exchange for a fee equal to 7% of monthly gross revenues of the Harvest communities plus reimbursements of certain general and administrative costs that the Management Company incurs on behalf of Harvest (see Note 10).

Prior to January 1, 2015 certain employees of Harvest Management Sub, LLC (Management Sub), a wholly owned subsidiary of Harvest provided management services to the Partnership related to the Partnership’s underlying communities. Pursuant to a services agreement the Partnership reimbursed Management Sub for a portion of the employee cost which was based on an estimate of each individuals time spent working on the Partnership’s communities. Such reimbursement included a 10% markup as detailed in the agreement (see Note 10).

Fair Value of Financial Instruments

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

The Partnership follows the provisions of Accounting Standards Codification (ASC) 820, Fair Value Measurement, when valuing its financial instruments. The statement emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market-priced assumptions in fair value measurements, the statement establishes a fair value hierarchy that distinguishes between market-participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Level 1 and Level 2 of the hierarchy) and the reporting entity’s own assumptions about market-participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

12

Holiday AL Holdings LP

Notes to Consolidated Financial Statements (continued)

(In Thousands)

2. Summary of Significant Accounting Policies (continued)

• Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the Partnership has the ability to access.

• Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability, other than quoted prices, such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.

• Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level of input that is significant to the fair value measurement in its entirety. The Partnership’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Recently Issued Accounting Standards

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”), which amends U.S. GAAP to require reporting of discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.  This pronouncement becomes effective for the first annual reporting period beginning after December 15, 2014 with early adoption permitted.  The Partnership adopted ASU 2014-08 for the annual reporting period ending December 31, 2015 on a prospective basis. The adoption of this guidance did not have a material impact on the Partnership's consolidated cash flows, results of operations, financial position, or liquidity. 

13

Holiday AL Holdings LP

Notes to Consolidated Financial Statements (continued)

(In Thousands)

2. Summary of Significant Accounting Policies (continued)

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"). ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. Under ASU 2014-09, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. The new standard will be effective for the Company beginning on January 1, 2018 and early adoption will be permitted beginning on January 1, 2017. The Company is currently evaluating the impact the adoption of ASU 2014-09 will have in its consolidated financial statements and disclosures.

3. Resident Lease Intangibles, Net

At December 31, 2015 and 2014, resident lease intangibles, net were as follows:

	Resident Lease Intangibles, Net
Balance at January 1, 2014	$	1,990
Amortization	(60)
Balance at December 31, 2014	1,930
Amortization	(60)
Balance at December 31, 2015	$	1,870

14

Holiday AL Holdings LP

Notes to Consolidated Financial Statements (continued)

(In Thousands)

3. Resident Lease Intangibles, Net (continued)

Future amortization expense related to the resident lease intangibles over the next five years and thereafter, is as follows:

	Estimated Amortization of Resident Lease Intangibles, Net
Years:
2016	$	60
2017	60
2018	60
2019	60
2020	60
Thereafter	1,570
Total	$	1,870

4. Other Balance Sheet Data

Prepaid expenses and other assets, net consisted of the following as of December 31, 2015 and 2014:

	2015		2014
Deferred rent incentives, net	$	1,050	$	1,636
Prepaid real & personal property tax	1,483		1,210
Prepaid insurance	862		389
Other assets	20,841		5,867
Pre-paid lease expense	—		927
Due from affiliate (see Note 10)	15,373		10,615
Total	$	39,609	$	20,644

15

Holiday AL Holdings LP

Notes to Consolidated Financial Statements (continued)

(In Thousands)

4. Other Balance Sheet Data (continued)

Accounts payable and accrued expenses consisted of the following as of December 31, 2015 and 2014:

	2015		2014
Trade and accrued payables	$	18,467	$	8,106
Salaries and benefits	15,860		7,620
Property taxes	7,210		8,431
Insurance reserves	10,065		5,278
Other	250		535
Total	$	51,852	$	29,970

5. Mortgage Notes Payable

During 2013, the Partnership repaid $234,319 in mortgage notes payable which was funded through contributions from the partners. In connection with the mortgage notes payable repayment, the Partnership incurred $5,983 of prepayment penalties and exit fees, which are included in loss on extinguishment of mortgage notes payable in the accompanying consolidated 2013 statement of operations. This payment satisfied all remaining mortgage payable obligations of the Partnership, and no further mortgage obligations were incurred subsequent to the payoff.

6. Leases

On September 25, 2014, Harvest sold 21 independent living communities to a third party. These communities were subsequently leased to the Partnership. The Partnership will operate the communities pursuant to a 15 year lease (with two 5 year renewal options at which point rent will reset to a fair value rate). The minimum lease payment is initially $30,250 annually, and such amount is subject to certain defined increases throughout the lease term, as further detailed in the lease agreement.

16

Holiday AL Holdings LP

Notes to Consolidated Financial Statements (continued)

(In Thousands)

6. Leases (continued)

On December 23, 2013, Harvest sold 25 independent living communities to a third party. These communities were subsequently leased to the Partnership. The Partnership will operate the communities pursuant to a 17 year lease. The minimum lease payment is initially $31,915 annually, and such amount is subject to certain defined increases throughout the lease term, as further detailed in the lease agreement.

On December 23, 2013, Harvest sold 51 independent living communities to a third party. These communities were subsequently leased to the Partnership. The Partnership will operate the communities pursuant to a 17 year lease. The minimum lease payment is initially $65,031 annually, and such amount is subject to certain defined increases throughout the lease term, as further detailed in the lease agreement.

On September 19, 2013, Harvest sold 26 independent living communities to a third party. These communities were subsequently leased to the Partnership. The Partnership will operate the communities pursuant to a 15 year lease (with two 5 year renewal options at which point rent will reset to a fair value rate). The minimum lease payment is initially $49,016 annually, and such amount is subject to certain defined increases throughout the lease term, as further detailed in the lease agreement.

Lease expense under noncancelable operating leases was as follows:

	Year Ended December 31
	2015		2014		2013
Contractual operating lease expense	$	183,658	$	154,580	$	16,073
Noncash straight-line lease expense	50,863		51,043		4,830
Lease expense	$	234,521	$	205,623	$	20,903

17

Holiday AL Holdings LP

Notes to Consolidated Financial Statements (continued)

(In Thousands)

6. Leases (continued)

Minimum future cash lease payments under noncancelable operating leases which include 123 communities at December 31, 2015, are as follows:

2016	$	191,770
2017	199,956
2018	206,532
2019	213,326
2020	220,347
Thereafter	2,403,147
Total	$	3,435,078

As of December 31, 2015, the Partnership was in compliance with all lease covenant requirements.

7. Variable-Interest Entities

Under the provisions for the consolidation of variable-interest entities in ASC 810-10, the Partnership consolidates the assets, liabilities, and results of operations of the Management Company, the entity that performs property management services and holds various management agreements with Harvest and third parties. The Partnership has a 51% interest in the Management Company. As a result of this ownership position, the Partnership determined that it is the primary beneficiary of this variable-interest entity because the Partnership has the power to direct the activities that most significantly impact the entity’s economic performance.

The Partnership’s maximum exposure to loss as a result of the investment is equal to $16.3 million, the amount the Partnership has contributed, and any additional funds which the Partnership may be required to contribute to the entity in the event of a cash shortfall.

18

Holiday AL Holdings LP

Notes to Consolidated Financial Statements (continued)

(In Thousands)

7. Variable-Interest Entities (continued)

The Partnership’s consolidated balance sheet as of December 31, 2015, includes the following amounts for the Management Company:

	2015
Assets
Equipment, net	$	577
Cash and cash equivalents	9,340
Prepaid expenses and other assets, net	14,552
Total assets	$	24,469
Liabilities and equity
Accounts payable and accrued expenses	$	23,861
Due to affiliate	10,731
Total liabilities	34,592
Equity:
Member’s equity	8,752
Non-controlling interest	(18,875		)
Total equity	(10,123		)
Total liabilities and equity	$	24,469

19

Holiday AL Holdings LP

Notes to Consolidated Financial Statements (continued)

(In Thousands)

7. Variable-Interest Entities (continued)

The Partnership’s consolidated statement of operations for the year ended December 31, 2015 includes the following amounts for the management company:

	2015
Management fee revenue	$	36,176
General and administrative expenses	(74,443		)
Other expenses	(254		)
Net loss attributable to the management company	(38,521		)
Net loss attributable to non-controlling interest	$	(18,875	)

The assets, liabilities, and results of operations of the Management Company for the years ended December 31, 2014 and 2013 were not material because the activities of the Management Company were not significant.

8. Insurance

Harvest obtains various insurance coverages from commercial carriers at stated amounts as defined in the applicable policies. Losses related to deductible amounts are accrued based on management’s estimate of expected losses plus incurred but not reported claims. As of December 31, 2015 and 2014, the Partnership accrued $10,065 and $5,278, respectively, for the expected future payment of deductible amounts specific to the Partnership, which is included in accounts payable and accrued expenses in the accompanying consolidated balance sheets.

9. Commitments and Contingencies

In the normal course of business, the Partnership is involved in legal actions arising from the ownership and operation of the business. In management’s opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material adverse effect in the consolidated financial position, operations or liquidity of the Partnership.

20

Holiday AL Holdings LP

Notes to Consolidated Financial Statements (continued)

(In Thousands)

10. Related Party

On January 1, 2015, Harvest and the Partnership entered into a note for approximately $10.6 million in consideration for the transfer of most of Harvest’s employees to the Management Company. The note is due on December 29, 2019, and bears interest equal to 1.72%. As of December 31, 2015, the outstanding principal balance was $10.6 million and is included in due to affiliate in the consolidated balance sheets.

On January 1, 2015, Harvest and the Partnership entered into a management agreement for property management and general and administrative services. Reimbursements from and amounts owed by Harvest as of December 31, 2015 in connection with the new management agreement were as follows (numbers in thousands other than number of buildings managed):

	Harvest
	2015
Number of buildings managed	78
Amounts received from related parties:
Management fee income	$	24,570
Expense reimbursements:
General and administrative (1)	7,193
Total management fee income and
expense reimbursements	$	31,763
Related party receivables included in
prepaid expenses and other assets, net
in the consolidated balance sheets (2)	$	15,373

(1) Amounts are recorded as a reduction to general and administrative costs in the Partnership’s consolidated financial statements.

(2) Receivable was collected subsequent to year-end.

21

Holiday AL Holdings LP

Notes to Consolidated Financial Statements (continued)

(In Thousands)

10. Related Party (continued)

As of December 31, 2014, the Partnership had a receivable due from Harvest in the amount of $10.6 million which represents expenses of Harvest paid by the Partnership.

In connection with the previous management agreement with Harvest that ended December 31, 2014, the Partnership had a payable due to Harvest in the amount $0 and $3.9 million, as of December 31, 2015 and 2014, respectively.

On September 25, 2014, the Partnership and Harvest entered into a note for approximately $18.1 million, the proceeds of which were used primarily to fund the security deposit for the operating lease of the 21 communities (see Note 6). The note was forgiven on April 30, 2015 and treated as a non-cash contribution in the consolidated statement of changes in equity. As of December 31, 2015 and 2014 the outstanding principal balance was $0.0 million and $18.1 million, respectively, in due to affiliate in the consolidated balance sheets.

11. Subsequent Events

The Partnership has evaluated its subsequent events through February 19, 2016, the date the Partnership’s consolidated financial statements for the year ended December 31, 2015, were available for issuance. No subsequent events occurred which required accrual or disclosure in the consolidated financial statements.

22

EX-99.2

Exhibit 99.2

SENIOR LIVING COMMUNITIES, LLC

AND

SUBSIDIARIES

Charlotte, North Carolina

Consolidated

Financial Statements

At

December 31, 2015 and 2014

And

For The Years Ended

December 31, 2015, 2014, and 2013

* * * * * * *

TABLE OF CONTENTS

Page

Financial Statements:

Independent Auditor’s Report 2

Consolidated Balance Sheets 3 - 4

Consolidated Statements of Operations 5

Consolidated Statements of Changes in Members’ Deficit 6

Consolidated Statements of Cash Flows 7 - 8

Notes to Consolidated Financial Statements 9 - 23

Independent Auditor’s Report

To the Members

of Senior Living Communities, LLC and Subsidiaries

We have audited the accompanying consolidated financial statements of Senior Living Communities, LLC (a North Carolina limited liability company) and subsidiaries, which comprise the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of operations, changes in members’ deficit, and cash flows for the years ended December 31, 2015, 2014 and 2013, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Senior Living Communities, LLC and subsidiaries as of December 31, 2015 and 2014, and the results of their operations, their changes in members’ equity, and their cash flows for the years ended December 31, 2015, 2014 and 2013, in accordance with accounting principles generally accepted in the United States of America.

Change in Accounting Principles

As described in Note P to the financial statements, during the year ended December 31, 2014 the Company changed its method of accounting for commissions paid for new occupancy agreements. As described in Note O to the financial statements, during the year ended December 31, 2013 the Company changed its method of accounting for goodwill, and reverted back to its previous method during the year ended December 31, 2014. Our opinion is not modified with respect to these matters.

/s/Moyer, Smith & Roller, P.A.

Charlotte, North Carolina

February 15, 2016

SENIOR LIVING COMMUNITIES, LLC AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2015 and 2014

ASSETS
					2015			2014
	Current Assets
		Cash			$	1,337,024		$	4,180,241
		Restricted Cash			2,053,130			2,712,948
		Occupancy Fee Deposits in Escrow			4,713,287			1,265,893
		Accounts Receivable - Trade, Net			1,818,254			2,060,494
		Accounts Receivable - Other			64,848			312,118
		Accounts Receivable - Related Parties			126,917			22,641
		Prepaid Expenses			860,143			874,924
		Inventory			105,300			81,630
			Total Current Assets		11,078,903			11,510,889
	Property and Equipment
		Construction and Renovations in Progress			7,229,636			3,384,978
		Leasehold Improvements			10,141,720			36,298
		Site Improvements			96,723			—
		Furniture, Fixtures and Equipment			631,653			6,630
		Automobiles and Golf Carts			1,936,946			1,691,160
			Total Property and Equipment		20,036,678			5,119,066
			Less Accumulated Depreciation		(1,947,167		)	(1,330,011		)
				Property and Equipment, Net	18,089,511			3,789,055
	Other Assets
		Utility Deposits			19,755			19,755
		Lease Deposit			10,000,000			10,000,000
		Goodwill			27,886,228			27,886,228
			Total Other Assets		37,905,983			37,905,983
			TOTAL ASSETS		$	67,074,397		$	53,205,927

See Independent Auditor's Report and Accompanying Notes

- 3 -

SENIOR LIVING COMMUNITIES, LLC AND SUBSIDIARIES

Consolidated Balance Sheets (Continued)

December 31, 2015 and 2014

LIABILITIES AND MEMBERS' DEFICIT
					2015			2014
	Current Liabilities
		Accounts Payable			$	3,340,635		$	1,990,421
		Accounts Payable - Related Parties			4,500			25,446
		Monthly Service Fees Received in Advance			1,884,182			1,303,853
		Accrued Expenses			6,396,780			5,454,690
		Resident Deposits			1,373,971			1,681,017
		Current Portion of Deferred Revenues			7,513,975			6,837,388
		Current Portion of Notes Payable			73,237			48,585
		Current Portion of Distributions Payable			434,552			2,470,000
			Total Current Liabilities		21,021,832			19,811,400
	Long-Term Liabilities
		Straight Line Rent Payable - NHI			8,759,667			338,443
		Line of Credit from NHI			6,281,949			2,816,146
		Notes Payable			285,362			228,659
		Note Payable - Members			675,000			—
		Deposits on Resident Contracts			8,329,759			2,790,937
		Refundable Occupancy Fees			191,446,710			179,840,874
		Deferred Revenues			11,856,157			10,859,004
		Distributions Payable			3,767,885			5,803,333
		Less Amounts Due Within One Year			(8,021,764		)	(9,355,973		)
			Total Long-Term Liabilities		223,380,725			193,321,423
	Total Liabilities				244,402,557			213,132,823
	Members' Deficit				(177,328,160		)	(159,926,896		)
			TOTAL LIABILITIES AND
				MEMBERS' DEFICIT	$	67,074,397		$	53,205,927

See Independent Auditor's Report and Accompanying Notes

- 4 -

SENIOR LIVING COMMUNITIES, LLC AND SUBSIDIARIES

Consolidated Statements of Operations

For the Years Ended December 31, 2015, 2014 and 2013

			2015			2014			2013
Revenues
	Service Fees		$	86,298,396		$	79,124,165		$	70,944,909
	Net Occupancy Fees Earned		9,693,180			11,761,135			6,460,502
	Ancillary Income		464,630			685,246			862,813
		Revenues, Net	96,456,206			91,570,546			78,268,224
Expenses
	Operating Expenses		62,091,846			57,619,647			53,048,869
	General and Administrative Expenses		10,104,296			10,213,789			8,999,405
	Lease Expense		39,421,223			21,752,486			19,542,769
	Depreciation and Amortization		617,156			1,910,402			1,263,385
		Total Operating Expenses	112,234,521			91,496,324			82,854,428
Operating Income (Loss)
	from Continuing Operations		(15,778,315		)	74,222			(4,586,204		)
Other Income (Expense)
	Interest Income		61,803			10,755			61,501
	Interest Expense		(607,539		)	(3,683,204		)	(4,085,215		)
	Gain on Sale of Assets		9,732			57,783,554			276,657
	Provision for Bad Debt		—			—			(4,890,448		)
	Other Income		—			68,091			28,866
	Other Expense		(377,307		)	(506,785		)	(205,503		)
		Other Income (Expense), Net	(913,311		)	53,672,411			(8,814,142		)
Net Income (Loss)
	from Continuing Operations		(16,691,626		)	53,746,633			(13,400,346		)
Discontinued Operations
	Loss from Discontinued Operations		—			—			(974,288		)
	Gain on Sale of Assets		—			—			2,143,126
		Total Discontinued Operations	—			—			1,168,838
Net Income (Loss)			$	(16,691,626	)	$	53,746,633		$	(12,231,508	)

See Independent Auditor's Report and Accompanying Notes

- 5 -

SENIOR LIVING COMMUNITIES, LLC AND SUBSIDIARIES

Consolidated Statements of Changes in Members' Deficit

For the Years Ended December 31, 2015 and 2014 and 2013

Balance at January 1, 2013		$	(172,984,935	)
	Net Loss	(12,231,508		)
	Distributions to Members Paid or Accrued	(872,741		)
Balance at December 31, 2013		(186,089,184		)
	Net Income	53,746,633
	Distributions to Members Paid or Accrued	(27,584,345		)
Balance at December 31, 2014		(159,926,896		)
	Net Loss	(16,691,626		)
	Distributions to Members Paid or Accrued	(709,638		)
Balance at December 31, 2015		$	(177,328,160	)

See Independent Auditor's Report and Accompanying Notes

- 6 -

SENIOR LIVING COMMUNITIES, LLC AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2015, 2014 and 2013

			2015			2014			2013
Cash Flows from Operating Activities
	Net Income (Loss)		$	(16,691,626	)	$	53,746,633		$	(12,231,508	)
	Adjustments to reconcile net income (loss)
	to net cash provided by operations:
		Depreciation and Amortization Expense	617,156			1,910,402			1,650,171
		Amortization of Occupancy Fees	(9,693,180		)	(11,761,135		)	(7,026,869		)
		Provision for Bad Debt	259,968			(216,923		)	5,212,130
		Gain on Sale and Distribution of Assets	(9,732		)	(57,783,554		)	(2,419,783		)
		Accrued Interest	—			168,070			(73,733		)
	Net occupancy fees received		22,296,169			26,060,941			26,623,608
	(Increase) Decrease in:
		Restricted Cash	659,818			(1,218,073		)	(230,725		)
		Occupancy Fee Deposits in Escrow	(3,447,394		)	(1,012,268		)	183,836
		Accounts Receivable - Trade	(17,728		)	339,098			(475,759		)
		Accounts Receivable - Related Parties	(104,276		)	742,468			288,583
		Accounts Receivable - Other	247,270			258,312			166,963
		Prepaid Expenses	14,781			590,747			(274,243		)
		Inventory	(23,670		)	41,757			8,282
	Increase (Decrease) in:
		Accounts Payable	1,350,214			(608,172		)	(2,413,554		)
		Accounts Payable - Related Parties	(20,946		)	14,877			10,569
		Monthly Service Fees Received in Advance	580,329			(22,353		)	(129,423		)
		Accrued Expenses	942,090			393,014			(2,862,233		)
		Straight Line Rent Payable - NHI	8,421,224			338,443			—
		Resident Deposits	267,954			477,210			193,035
		Deposits on Resident Contracts	4,963,822			(2,750,233		)	(249,530		)
	Net Cash Provided by Operating Activities		10,612,243			9,709,261			5,949,817

See Independent Auditor's Report and Accompanying Notes

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SENIOR LIVING COMMUNITIES, LLC AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)

For the Years Ended December 31, 2015, 2014 and 2013

			2015			2014			2013
Cash Flows from Investing Activities
	Additions to Property and Equipment		$	(8,098,359	)	$	(7,351,274	)	$	(5,432,477	)
	Additions to Construction and Renovations in Progress		(6,702,697		)	(2,565,809		)	(1,841,398		)
	Increase in Amounts Due from Related Parties		—			—			(353,191		)
	Net Proceeds from Sale of Assets		9,732			23,558,019			2,639,008
	Net Cash Provided by (Used in) Investing Activities		(14,791,324		)	13,640,936			(4,988,058		)
Cash Flows from Financing Activities
	Proceeds from Notes Payable		—			—			5,770,770
	Proceeds from Notes Payable - Members		675,000			200,000			200,000
	Principal Payments on Notes Payable		(59,853		)	(3,755,071		)	(6,586,258		)
	Principal Payments on Notes Payable -Members		—			(1,983,333		)	(400,000		)
	Proceeds from Line of Credit from NHI		4,665,764			2,816,146			—
	Repayment of Line of Credit from NHI		(1,199,961		)	—			—
	Proceeds from Construction Advances from HCN		—			5,058,783			3,380,096
	Repayment of Construction Advances from HCN		—			(4,323,092		)	(1,514,629		)
	Distributions to Members		(2,745,086		)	(21,781,012		)	(824,383		)
	Net Cash Provided by (Used in) Financing Activities		1,335,864			(23,767,579		)	25,596
Net Increase (Decrease) in Cash and Cash Equivalents			(2,843,217		)	(417,382		)	987,355
Cash and Cash Equivalents, Beginning of Year			4,180,241			4,597,623			3,610,268
Cash and Cash Equivalents, End of Year			$	1,337,024		$	4,180,241		$	4,597,623
Supplemental Cash Flow Information:
	Cash paid for interest expensed		$	501,471		$	3,683,204		$	1,508,242
	Cash paid for interest capitalized		$	389,222		$	—		$	—
	Significant non-cash transactions:
		Acquisition of vehicles in exchange for notes payable	$	116,556		$	97,657		$	186,116
		Accrued interest added to note principal	$	—		$	878,924		$	3,485,702
		Rent paid by increasing note payable to
		Health Care REIT, Inc.	$	—		$	—		$	2,285,068

See Independent Auditor's Report and Accompanying Notes

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Senior Living Communities, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

NOTE A - SIGNIFICANT ACCOUNTING POLICIES

Business Activity

Senior Living Communities, LLC was organized November 1, 2005 for the purpose of developing and operating retirement communities located in the United States. It operates as a limited liability company (LLC) in accordance with and pursuant to the North Carolina Limited Liability Company Act, and its members have limited personal liability for the obligations or debts of the entity. Only one class of member’s interest exists.

Consolidated Financial Statements

These consolidated financial statements include the accounts of Senior Living Communities, LLC and its subsidiaries - BrightWater Retirement, LLC; Cascades Retirement, LLC; Cascades Nursing, LLC; Homestead Hill Retirement, LP; Litchfield Retirement, LLC; Marsh’s Edge, LLC; Osprey Village at Amelia Island, Ltd.; Ridgecrest Retirement, LLC and Summit Hills, LLC. For the year ended December 31, 2013, they also included the discontinued operations and winding down activities of its subsidiaries Stratford Retirement, LLC; Abingdon Retirement, LLC; Viera Retirement, LLC; Vero Retirement Associates, LLC and its subsidiary Arbors Retirement, LLC. All material intercompany transactions and accounts are eliminated in consolidation.

As described in Note M, effective June 30, 2013, Senior Living Communities, LLC divested of its operations in Stratford Retirement, LLC. It sold most of its property and equipment to a new landlord of the facility and distributed its limited liability membership interest in Stratford Retirement, LLC to one of the members of Senior Living Communities, LLC. Effective December 31, 2012, Senior Living Communities, LLC divested itself of its operations and sold substantially all of the assets of the communities operated by Abingdon Retirement, LLC; Vero Retirement Associates, LLC; and Viera Retirement, LLC.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

The Company has a sweep arrangement with its bank that includes the bank accounts of Senior Living Communities, LLC and its subsidiaries. Under this arrangement, the operating accounts of Senior Living Communities, LLC and its participating subsidiaries are zero balance accounts. In prior years checks issued and outstanding on the operating accounts were shown as current liabilities on the Consolidated Balance Sheet. In the current year presentation cash is shown net of the outstanding checks. The cash balance for December 31, 2014, has been reduced by $1,687,117 which is the total of outstanding checks previously presented as Checks in Process. Other accounts in the prior year financial statements may have been reclassified for comparative purposes to conform with the presentation in the current year financial statements.

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Senior Living Communities, LLC and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2015 and 2014

NOTE A - SIGNIFICANT ACCOUNTING POLICIES (Continued)

Limited Liability Company / Income Taxes

The Company has elected to file its income tax return on the accrual basis as a partnership for federal and state income tax purposes. As a result, the Company’s taxable earnings or losses are passed through to the Company’s members who are then taxed based on their allocable share of such taxable earnings or losses. Accordingly, no provision or benefit for federal or state income taxes has been reported by the Company.

In the fourth quarter of 2015, the Internal Revenue Service completed its examination of the Company’s U.S. income tax returns for 2013 and 2012. There were no tax consequences to the Company. Any tax adjustments resulting from the IRS’s examination will be passed through to the individual members. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for 2013 and prior years. The Company is no longer subject to state income tax examinations by tax authorities for 2011 and prior years.

As a limited liability company, each member’s liability is limited to amounts reflected in their respective member capital accounts.

Cash and Cash Equivalents

The Company considers all highly liquid unrestricted investments with maturities of three months or less to be cash equivalents for purposes of the Statement of Cash Flows.

Accounts Receivable and Allowance for Doubtful Accounts

The Company carries its accounts receivable at cost less an allowance for doubtful accounts. On a periodic basis, management evaluates accounts receivable balances and establishes an allowance for doubtful accounts, based on history of past write-offs and collections. At December 31, 2015 and 2014, the allowance for doubtful accounts was $238,588 and $152,255, respectively.

Inventory

Inventories are stated at cost determined principally on the first-in, first-out basis.

Property and Equipment

Property and equipment are carried at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Major renewals and improvements are capitalized while replacements, maintenance, and repairs which do not improve or extend the life of the assets, are expensed currently. When assets are sold or retired, their cost and accumulated depreciation are removed from the accounts and resulting gains and losses are included in the Consolidated Statement of Operations.

Revenue Recognition

The Company recognizes revenue from monthly service and ancillary fees as they become due from the residents. The non-refundable portion of occupancy fees received from residents prior to moving into the communities is earned over a five-year amortization period.

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Senior Living Communities, LLC and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2015 and 2014

NOTE A - SIGNIFICANT ACCOUNTING POLICIES (Continued)

Advertising

Senior Living Communities, LLC and its subsidiaries expense advertising costs when the advertising first takes place. Consolidated advertising expense for the years ended December 31, 2015, 2014 and 2013 was $544,924; $552,772 and $683,535, respectively.

Self Insurance

The Company self insures health related claims for its covered employees up to certain limits. Claims in excess of these limits are insured with stop-loss insurance. The Company has accrued a liability it believes is adequate to cover the outstanding claims and claims that have been incurred but not yet reported as of December 31, 2015 and 2014. Any subsequent changes in estimate are recorded in the period in which they are determined.

Master Lease Agreements

Through December 17, 2014, Senior Living Communities, LLC had a master lease agreement with Health Care REIT, Inc. (HCN) for the lease of each community. The master lease had an initial lease term which was set to expire on December 31, 2025, and an option to renew for an additional fifteen (15) years. Senior Living Communities, LLC entered into sub-lease agreements with its subsidiaries under the same lease terms it had with Health Care REIT, Inc.

On December 17, 2014, National Health Investors, Inc. (NHI) acquired substantially all of the tangible property of Senior Living Communities, LLC and that which the Company leased from Health Care REIT, Inc. The Company entered into a new master lease agreement with National Health Investors, Inc. The new master lease has an initial lease term that is set to expire on December 31, 2030, and has two options to extend the lease for an additional five years with each extension. Senior Living Communities, LLC entered into sub-lease agreements with its subsidiaries under the same lease terms it has with National Health Investors, Inc.

Straight Line Rent Payable - NHI

Rent expense is recognized on a straight-line basis over the life of the lease. The difference between rent expense recognized and rental payments, as stipulated in the lease, is reflected as straight line rent payable - NHI in the Consolidated Balance Sheet.

Fair Value of Financial Instruments

FASB ASC 820-10 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820 are described as follows:

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Senior Living Communities, LLC and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2015 and 2014

NOTE A - SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair Value of Financial Instruments (Continued)

• Level 1 - Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the plan has the ability to access.

• Level 2 - Inputs to the valuation methodology include:

◦ Quoted market prices for similar assets or liabilities in active markets;

◦ Quoted prices for identical or similar assets or liabilities in inactive markets;

◦ Inputs other than quoted prices that are observable for the asset or liability;

◦ Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

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

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

Cash, restricted cash, and occupancy fee deposits in escrow are carried at amounts considered by management to approximate fair value based on Level 1 valuation. Long-term notes payable are carried at amounts considered by management to approximate fair value based on Level 3 valuation, using discounted cash flow analyses based on debt with similar interest rates, maturities and collateral.

NOTE B - RESTRICTED CASH

The Master Lease Agreements with National Health Investors, Inc. and with Health Care REIT, Inc. require the Company to maintain an escrow account(s). These cash accounts are reported on the balance sheet as current assets. At December 31, 2015 and 2014, the restricted cash balances were:

	2015		2014
Settle-Up Escrow	$	457,423	$	2,600,000
Property Tax Account		1,564,707		81,948
Health Care Claims Account		31,000		31,000
Total Restricted Cash	$	2,053,130	$	2,712,948

- 12 -

Senior Living Communities, LLC and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2015 and 2014

NOTE C - CONCENTRATIONS

Senior Living Communities, LLC and its subsidiaries maintain their cash balances at one bank under a sweep investment arrangement. The operating accounts of Senior Living Communities, LLC and each of its participating subsidiaries are zero balance accounts. The daily ending balance of each account is cleared by a sweep transfer to a master account held by Senior Living Communities, LLC. Funds held in the master account are owned by the respective entities, and Senior Living Communities, LLC is the custodian. When funds are required in the operating accounts to clear checks and other disbursements, the necessary amounts are automatically transferred from the master account back to the operating accounts.

Deposit insurance through the Federal Deposit Insurance Corporation is a function of ownership of the funds on deposit. Each entity participating in the master account is entitled to its own separate deposit insurance up to $250,000. Amounts on deposit with other banks are also insured through the Federal Deposit Insurance Corporation up to $250,000. At times the balances may exceed the insured amounts. The Company periodically reviews the financial condition of the institutions and believes the risk of loss to be minimal.

NOTE D - ACCOUNTS RECEIVABLE - OTHER

During the year ended December 31, 2015, the Company submitted claims for insurance reimbursements for flood damage at one of its communities. The accounts receivable - other balance of $64,848 is the remaining reimbursement the Company expects to receive from insurance.

During the years ended December 31, 2013 and 2014, the Company submitted claims for insurance reimbursements for lightning damage at two of its communities. At December 31, 2014, the balance remaining to be collected for these claims included in the accounts receivable-other balance totaled $150,750. Accounts receivable-other at December 31, 2014 also included $161,368 of property taxes to be refunded to the community operated by Cascades Retirement, LLC.

NOTE E - CONSTRUCTION IN PROGRESS

The Company has expansion projects at several communities. The projects include cottages, villas and other improvements. Costs related to the construction are allocated to the specific project or unit under construction, including interest on the allocated portion of the construction line of credit. Once the unit has received its certificate of occupancy or the renovation project is complete, the total cost is removed from construction in progress and is included in leasehold improvements. Any interest charged after the unit has been capitalized is included in expense until the allocated construction advance is repaid.

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Senior Living Communities, LLC and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2015 and 2014

NOTE F - LINE OF CREDIT FROM NHI

National Health Investors, Inc. has provided a line of credit to Senior Living Communities, LLC to be used for various construction projects and to provide working capital as necessary. The maximum amount available to the Company under the agreement is $15,000,000 through December 31, 2019. Interest on the outstanding principal balance of the loan shall accrue at a floating per annum rate of the Ten Year Treasury Note Rate (as published in the Wall Street Journal on the fifteenth (15^th) day of each month or if the Wall Street Journal is not published on the fifteenth day of the month then the next publication day thereafter) plus six percent (6%). Commencing on February 1, 2015 and continuing on the first business day of each successive month thereafter, the Company shall pay to the landlord, (a) accrued interest at the Note Rate based upon the principal outstanding during the Interest Accrual Period, and (b) any other amounts due under the Loan Documents. The Company shall have the option of capitalizing the interest hereunder by adding it to the principal balance each month and paying it on the Maturity Date. Principal payments under a Working Capital Loan shall be due on the first day of the month following receipt by the landlord of the Company’s consolidated quarterly financial statements, if the Fixed Charge Coverage Ratio for the trailing twelve month period of operation ending on the last day of such quarter is at least 1.00 to 1.00, in an amount equal to 75% of the amount by which the numerator of such ratio exceeds the denominator of such ratio. In addition, a principal payment of $10,000,000 shall be due and payable on December 31, 2019 and after that date the maximum principal amount of the Loan and any further draws shall be limited to the remaining $5,000,000 of the loan and may be used only for working capital or as otherwise approved by the landlord. Outstanding advances at December 31, 2015 and 2014 under this agreement totaled $6,281,949 and $2,816,146, respectfully.

NOTE G - NOTES PAYABLE

The following are the amounts outstanding as of December 31:

	2015		2014
A note payable to a financing company, monthly payments of
$956, including interest imputed at 0.62%, all outstanding principal
and interest due August 1, 2018, secured by a vehicle.	$	38,582	$	50,731
A note payable to a financing company, monthly payments of
$1,116, including interest imputed at 10.8%, all outstanding
principal and interest due November 1, 2018, secured by
a vehicle.		32,823		42,100
Notes payable to a financing company, monthly payments of
$3,058, including interest at 5.7%, all outstanding principal and
interest due February 19, 2019, secured by vehicles.		104,569		135,828

- 14 -

Senior Living Communities, LLC and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2015 and 2014

NOTE G - NOTES PAYABLE (Continued)

	2015			2014
A note payable to a bank, monthly payments of $1,226, including
interest at 3.8%, all outstanding principal and interest due
April 30, 2020, secured by a vehicle.	$	59,740		$	—
A note payable to a bank, monthly payments of $929, including
interest at 4.65%, all outstanding principal and interest due
February 12, 2021, secured by a vehicle.		49,648			—
An unsecured note payable to the LLC members, monthly
payment of interest only at 8%, all outstanding principal and
interest due January 31, 2017.		675,000			—
Total		960,362			228,659
Less amounts due within one year	(	73,237	)	(	48,585	)
Long-term notes payable	$	887,125		$	180,074

Future minimum payments under long-term notes payable as of December 31, 2015 are:

Year Ending
December 31	Amount
2016	$	73,237
2017		753,703
2018		85,680
2019		29,034
2020		16,861
Thereafter		1,847
Total	$	960,362

NOTE H - REFUNDABLE OCCUPANCY FEES

Senior Living Communities, LLC and its subsidiaries recognize a long-term liability for the refundable portions of occupancy fees received from residents. Under the terms of the occupancy agreements and the master lease with the landlord, the refunds are to be made from occupancy fees collected from replacement residents.

The Company offers three forms of Occupancy Agreement: The “90% Minimum Refund Plan,” the “60% Minimum Refund Plan,” and the “Endowment Plan.” In the past, the Company also offered a

- 15 -

Senior Living Communities, LLC and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2015 and 2014

NOTE H - REFUNDABLE OCCUPANCY FEES (Continued)

“100% Minimum Refund Plan” and an “80% Minimum Refund Plan” which have been discontinued. The “100% Minimum Refund Plan” and the “90% Minimum Refund Plan” Occupancy Agreements provide for repayment to the resident 100% or 90% of the original occupancy fee paid by the resident, respectively, regardless of when the resident subsequently moves out of the home. The “80% Minimum Refund Plan” Occupancy Agreements provide for repayment of 90% of the original occupancy fee to the resident if the resident moves out of the home in the first year and 80% of the original occupancy fee paid by the resident if the resident moves out of the home in the second year or thereafter. The “60% Minimum Refund Plan” Occupancy Agreements provide for repayment to the resident 90%, 80%, or 70% of the original occupancy fee paid by the resident if the resident moves out of the home in the 1^st, 2^nd or 3^rd year, respectively, after becoming a resident. In the 4^th year or thereafter, the resident is entitled to a 60% refund of the occupancy fee paid. The “Endowment Plan” Occupancy Agreements provide for repayment to the resident of 90% of the original occupancy fee paid by the resident if the resident moves out of the home within the first six months of becoming a resident. After six months, the refundable portion is reduced each month by 2% of the total occupancy fee paid by the resident until the refundable portion is reduced to zero.

For all plan types, the refund is payable upon the earlier of securing a substitute resident who pays to the Company the then applicable occupancy fee or five years from the date the resident moves out.

Some of the residents of the community operated by Cascades Retirement, LLC were residents prior to the acquisition by Senior Living Communities, LLC. The occupancy agreements with these residents provide for a refund of 90% of the occupancy fee received from the substitute resident.

Certain refund obligations on single family homes are secured by mortgages from the landlord. Beginning January 1, 2009, the Company and the landlord discontinued the practice of securing refund obligations on single-family cottages with mortgages.

NOTE I - DEFERRED REVENUES

A portion of the occupancy fee received from residents represents payment for future services and therefore is non-refundable. The non-refundable portion is recorded as deferred revenue and recognized as earned revenue over a period of five years from the resident’s move-in date, which approximates the average residency of the communities’ residents in independent living. Periodically, the Company re-evaluates the appropriate revenue recognition period for income earned from these contracts. Prior to January 1, 2014, the Company recognized revenue over a period of 6.5 years, which approximated the average residency in independent living at that time. Total deferred revenue to be recognized under existing occupancy fee contracts as of December 31, 2015 and 2014 is $11,856,157 and $10,859,004, respectively. The amount scheduled to be recognized in 2016 is $7,513,975.

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Senior Living Communities, LLC and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2015 and 2014

NOTE J - GAIN ON SALE OF ASSETS

On December 17, 2014, the Company and Health Care REIT, Inc. sold the assets located at the eight communities operated by the subsidiaries of Senior Living Communities, LLC to National Health Investors, Inc. Senior Living Communities, LLC received $73,287,138 in cash and other consideration from the sale of assets having a net book value of $14,304,735, and wrote off other costs previously capitalized of $1,205,294.

Non-cash consideration received from the sale of property to National Health Investors, Inc. included the relief from liability for construction advances and other loans made by Health Care REIT, Inc., to Senior Living Communities, LLC totaling $39,735,564. It also included $10,000,000 retained by National Health Investors, Inc. as a security deposit to be held in an escrow account with interest to accrue to the benefit of Senior Living Communities, LLC. The security deposit and any accrued interest thereon are not accessible to Senior Living Communities, LLC until the expiration or termination of the lease.

NOTE K - OPERATING LEASES

The master lease agreement between Senior Living Communities, LLC and its subsidiaries and National Health Investors, Inc. is set to expire on December 31, 2030. It includes an option to renew for two additional five-year terms. The following is a consolidated schedule of future minimum base rental payments for the facilities over the next five years and in total:

Year Ending
December 31	Amount
2016	$	32,240,000
2017		33,529,600
2018		34,870,784
2019		35,916,908
2020		36,994,415
Thereafter		387,105,091
Total	$	560,656,798

Periodically Senior Living Communities, LLC had been required to pay the former landlord, Health Care REIT, Inc., “conversion rent” upon the conversion of an independent living villa from a rental contract to an occupancy fee contract at certain communities. “Conversion rent” was paid in addition to base rent. When paid, these amounts were recorded as prepaid rent on each subsidiary’s balance sheet and amortized over the remaining lease term. “Conversion rent” payments were not required on conversions after December 31, 2012. All of the unamortized balance was expensed in the year ended December 31, 2014, when the properties were acquired by the new landlord, and the lease agreement with Health Care REIT, Inc. was cancelled.

- 17 -

Senior Living Communities, LLC and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2015 and 2014

NOTE K - OPERATING LEASES (Continued)

Senior Living Communities, LLC and its subsidiaries lease various types of equipment with terms ranging from month-to-month to four years. The following is a consolidated schedule of future minimum base rental payments under these leases over the next five years and in total:

Year Ending
December 31	Amount
2016	$	133,930
2017		115,288
2018		105,868
2019		44,112
2020		—
Thereafter		—
Total	$	399,198

NOTE L - RELATED PARTY TRANSACTIONS

The Company participated in several transactions with individuals, corporations and other limited liability companies considered related due to common ownership and/or control. These entities include the following:

Related Party	How Related
David Jackson, Jr.	Senior Living Communities, LLC member through
	December 31, 2014
Donald O. Thompson, Jr. and
Brenda U. Thompson	Senior Living Communities, LLC members
Maxwell Group, Inc.	Owned and controlled by Donald O. Thompson, Jr.
Live Long Well Care, LLC	David Jackson, Jr. LLC member through December 31, 2014
	Donald O. Thompson, Jr. and
	Brenda U. Thompson LLC members
Stratford Retirement, LLC	Donald O. Thompson, Jr. and
	Brenda U. Thompson LLC members
Wellmore, LLC	Donald O. Thompson, Jr. and
	Brenda U. Thompson LLC members
Wellmore of Tega Cay, LLC	Subsidiary of Wellmore, LLC
Wellmore of Lexington, LLC	Subsidiary of Wellmore, LLC
Wellmore of Daniel Island, LLC	Subsidiary of Wellmore, LLC

- 18 -

Senior Living Communities, LLC and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2015 and 2014

NOTE L - RELATED PARTY TRANSACTIONS (Continued)

Senior Living Communities, LLC maintains an escrow account for use by its subsidiaries for the acceptance of certain deposits from prospective new residents and to hold funds designated for refunds currently owed to former residents of the communities. Deposits held in this account at December 31:

	2015		2014
BrightWater Retirement, LLC	$	353,672	$	47,500
Cascades Retirement, LLC		2,613,841		710,540
Homestead Hill Retirement, LP		189,050		81,500
Litchfield Retirement, LLC		112,320		144,940
Marsh’s Edge, LLC		353,161		90,390
Osprey Village at Amelia Island, Ltd.		1,013,996		95,800
Ridgecrest Retirement, LLC		9,500		2,500
Summit Hills, LLC		65,460		90,470
Total	$	4,711,000	$	1,263,640

In its capacity as the parent company, Senior Living Communities, LLC pays various expenses on behalf of its subsidiaries, principally rent, property taxes, and insurance. It also receives the cash advances from the landlord’s construction loans and makes the payments against the construction line of credit. The subsidiaries also engage in certain intercompany advances and expense allocations.

Transactions with related parties during the years ended December 31, 2015, 2014 and 2013 included the following:

During the year ended December 31, 2015, the Company paid Mr. and Mrs. Thompson interest totaling $43,606 on a loan to the Company of $675,000 which remains outstanding. At December 31, 2015, the Balance Sheet also includes a current distribution payable balance of $289,626 to Mr. and Mrs. Thompson, which is the amount remaining of the $1,646,580 that had been accrued at December 31, 2014. It is to be paid from the Settle-Up Escrow account when the funds are released.

During the year ended December 31, 2014, the Company paid Mr. and Mrs. Thompson interest totaling $699,336, which included previously accrued interest through December 31, 2013, and repaid loan principal of $1,383,333. The Company accrued distributions payable to Mr. and Mrs. Thompson totaling $1,646,580 to be paid from the Settle-Up Escrow account when the funds were released. These distributions payable were included in the Balance Sheet in the current portion of distributions payable at December 31, 2014. Mrs. Thompson made a new loan to the Company of $200,000, which was repaid during the year.

During the year ended December 31, 2013, the Company paid $85,012 of interest to Mr. and Mrs. Thompson on their loan balances. Mrs. Thompson loaned the Company an additional $200,000. Mr. and Mrs. Thompson were repaid principal of $400,000 during the year. At December 31, 2013, accrued interest payable to Mr. and Mrs. Thompson was $577,365, and the outstanding loans totaled $1,383,333.

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Senior Living Communities, LLC and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2015 and 2014

NOTE L - RELATED PARTY TRANSACTIONS (Continued)

At December 31, 2015, the Company’s Balance Sheet includes a remaining current distribution payable to Mr. Jackson of $144,925 which is to be paid from the Settle-Up Escrow account when the funds are released. Another $3,333,333 distribution payable is long-term and is to be paid when the Lease Security Deposit is refunded.

During the year ended December 31, 2014, the Company paid Mr. Jackson interest totaling $191,448, which included previously accrued interest through December 31, 2013, and repaid loan principal of $400,000. At December, 31, 2014, the Company accrued distributions payable to Mr. Jackson totaling $4,156,753, of which $823,420 were included in the Balance sheet in the current portion of distributions payable at December 31, 2014, and were to be paid from the Settle-Up Escrow account when the funds were released. The other $3,333,333 was long-term, to be paid when the Lease Security Deposit is refunded.

During the year ended December 31, 2013, Mr. Jackson was paid $28,000 interest during the year on his outstanding loan balance of $400,000. At December 31, 2013, accrued interest payable to Mr. Jackson was $133,489.

Maxwell Group, Inc. provides the subsidiaries of Senior Living Communities, LLC with management, employee recruitment, accounting, advertising and creative services throughout the year. During the year ended December 31, 2015, the Company paid Maxwell Group, Inc. a total of $8,247,505, which included management fees and reimbursements for additional services outside the scope of the management agreement.

During the year ended December 31, 2014, the Company paid Maxwell Group, Inc. a total of $6,823,465 for their services. There was a current balance payable to Maxwell Group, Inc. of $25,446 at December 31, 2014.

In the year ended December 31, 2013, the Company paid Maxwell Group, Inc. a total of $4,138,404. There was a current balance due from Maxwell Group, Inc. of $714,473 for advances made during the year plus interest accruing at 8.0% at December 31, 2013.

Live Long Well Care, LLC, an affiliated company established to provide home health services to the residents of the retirement communities operated by Senior Living Communities, LLC, and the subsidiaries of Senior Living Communities, LLC provide labor on a contract basis to each other to provide services to residents of the communities. They also share certain expenses throughout the year. In, 2015, Live Long Well Care, LLC reimbursed the Company $3,005,782 for expenses incurred on its behalf.

In 2014, Live Long Well Care, LLC reimbursed the Company $1,959,098. At December 31, 2014, there was a current balance receivable from Live Long Well Care, LLC of $8,334.

In 2013, the Company loaned $353,191 to Live Long Well Care, LLC on an unsecured line of credit. All unpaid principal and interest totaling $4,890,448 was forgiven as of December 31, 2013 and was expensed as bad debt.

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Senior Living Communities, LLC and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2015 and 2014

NOTE L - RELATED PARTY TRANSACTIONS (Continued)

Stratford Retirement, LLC, another affiliated company, shares certain expenses with Senior Living Communities, LLC throughout the year. During the year ended December 31, 2015, Stratford Retirement, LLC reimbursed the Company $1,222,080 for expenses incurred on its behalf.

In the year ended December 31, 2014, Stratford Retirement, LLC reimbursed the Company $846,767. There was a current balance receivable from Stratford Retirement, LLC of $14,307 at December 31, 2014.

Wellmore, LLC, another affiliated company, also shares certain expenses with Senior Living Communities, LLC through its subsidiaries Wellmore of Daniel Island, LLC; Wellmore of Lexington, LLC and Wellmore of Tega Cay, LLC. During the year ended December 31, 2015, Wellmore of Daniel Island, LLC reimbursed the Company $25,781 for expenses incurred on its behalf. Wellmore of Lexington, LLC reimbursed the Company $197,867, and Wellmore of Tega Cay, LLC reimbursed the Company $989,670. At December 31, 2015, there is an additional current amount receivable from Wellmore of Tega Cay, LLC of $126,917.

NOTE M - DISCONTINUED OPERATIONS

Effective June 30, 2013, Senior Living Communities, LLC discontinued its operation of the community operated by Stratford Retirement, LLC.

The net income of Stratford Retirement, LLC included in the total from discontinued operations of Senior Living Communities, LLC for the year ended December 31, 2013 was $1,552,389. This included a net gain on the sale of fixed assets of $8,904; a gain on the relief from liability for the refundable occupancy fees of $15,804,480 and a write-off of goodwill of $13,670,258.

The net book value of the remaining assets and liabilities of $337,211 of Stratford Retirement, LLC were distributed to one of the members of Senior Living Communities, LLC.

To the extent that they are a controlled group because of common ownership, the employees of Stratford Retirement, LLC continue to participate in the same benefits plan offered to employees of Senior Living Communities, LLC. However, Stratford Retirement, LLC is autonomous in all other respects.

Net loss included in discontinued operations for the year ended December 31, 2013 from the winding down of Abingdon Retirement, LLC, which was disposed of on December 31, 2012, was $337,702. Consolidated net loss included in discontinued operations for the year ended December 31, 2013 from the winding down of Vero Retirement Associates, LLC and Arbors Retirement, LLC, which were disposed of on December 31, 2012, was $6,739. Net income included in discontinued operations for the year ended December 31, 2013 from the winding down of Viera Retirement, LLC, which was disposed of on December 31, 2012, was $50,765.

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Senior Living Communities, LLC and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2015 and 2014

NOTE N - 401(k) PROFIT SHARING PLAN

The Company has established a 401(k) profit sharing plan for the benefit of its eligible employees and the eligible employees of its subsidiaries and related companies. Employees who are 21 years of age or older are immediately eligible to participate in the plan and are eligible for matching contributions. Employees become fully vested in the employer contributions to the plan after one year of service. The Company’s matching contribution to the plan is discretionary. Currently, the Company’s matching contribution equals 20% of up to 5% of compensation. Consolidated employer matching contributions for the years ended December 31, 2015, 2014, and 2013 were $173,492; $151,550 and $142,135, respectively.

NOTE O - RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS PERTAINING TO ACCOUNTING FOR GOODWILL

The Company has restated its previously issued financial statements for the year ended December 31, 2013, to reflect a change in accounting for goodwill. In 2013, the Company recognized amortization expense of $2,788,623 related to goodwill using an alternate accounting method which permitted amortization of goodwill on a straight-line basis over ten years. In 2014, the Company elected to follow ASC 350 - Goodwill and Other Intangible Assets, and reversed the previously recorded amortization expense. See Note Q.

During 2015, 2014 and 2013, the Company performed its annual review of goodwill and determined that no impairment charge was necessary.

NOTE P - CHANGE IN ACCOUNTING PRINCIPLE FOR COMMISSIONS PAID ON INITIAL OCCUPANCY AGREEMENTS

Effective January 1, 2014, the Company changed its accounting method of accounting for commissions paid on initial or first-generation occupancy fee agreements. Previously, the Company capitalized those commissions and amortized them over the average resident stay which was 6.5 years. Currently, the Company is expensing all such costs in accordance with ASC 954 - Health Care Entities as all of the communities are substantially constructed and occupied. Comparative statements of prior years have been adjusted to apply the new method retrospectively. See Note Q.

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Senior Living Communities, LLC and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2015 and 2014

NOTE Q - CUMULATIVE EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES

The effects of the restatements on affected line items of the Company’s results of operations for the year ended December 31, 2013 are as follows:

	As Previously
	Reported			Restated
Revenues, Net	$	78,268,224		$	78,268,224
Operating Expenses Before Rent		66,234,284			63,311,659
Rent Expense		19,542,769			19,542,769
Operating Income (Loss) from
Continuing Operations	(	7,508,829	)	(	4,586,204	)
Other Income (Expense), Net	(	8,814,142	)	(	8,814,142	)
Net Income (Loss) from
Continuing Operations	(	16,322,971	)	(	13,400,346	)
Total from Discontinuing Operations		1,168,838			1,168,838
Net Income (Loss)	(	15,154,133	)	(	12,231,508	)

The effects of the restatements on affected line items of the Company’s financial position as of December 31, 2013 are as follows:

Prepaid Expenses		702,511			1,042,086
Total Current Assets		10,850,510			11,190,085
Deferred Commissions, Net		2,400,636			—
Goodwill		25,097,605			27,886,228
Total Other Assets		29,032,600			29,420,587
Total Assets		49,898,775			50,626,337
Total Liabilities		236,715,521			236,715,521
Members’ Equity	(	186,816,746	)	(	186,089,184	)

NOTE R - SUBSEQUENT EVENTS

The Company evaluated transactions occurring after December 31, 2015 in accordance with ASC 855 - Subsequent Events through February 15, 2016, which is the date the financial statements were available for issuance. Based on this evaluation, no disclosures or adjustments were made to the financial statements.

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