September 2018 - State Corporation Commission · 2018-12-19 · This is a disclosure statement intended to comply with the provisions of Section 38.2-4900 through 38.2-4904 of the

a Continuing Care Provider 5101 Cox Road, Suite 225,

Glen Allen, VA 23060

Disclosure Statement For:

Hermitage Richmond 1600 Westwood Avenue

Richmond, Virginia 23227-4682

Hermitage Eastern Shore 23610 North Street

Onancock, Virginia 23417-2024

Hermitage Northern Virginia 5000 Fairbanks Avenue

Alexandria, Virginia 22311-1241

Hermitage Roanoke 1009 Old Country Club Road

Roanoke, Virginia 24017-0339

Cedarfield 2300 Cedarfield Parkway

Richmond, Virginia 23233-1938

Lydia Roper Home 127 East 40th Street

Norfolk, Virginia 23504-1099

Separate Disclosure Statement Available For:

WindsorMeade Williamsburg 3900 Windsor Hall Drive

Williamsburg, Virginia 23188

September 2018 This is a disclosure statement intended to comply with the provisions of Section 38.2-4900 through 38.2-4904 of the Code of Virginia of 1950, as amended. The filing of this disclosure statement with the State Corporation Commission of Virginia does not constitute approval, recommendation or endorsement of the community by the State Corporation Commission.

September 28, 2018

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DISCLOSURE STATEMENT

September 2018

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MISSION STATEMENT

The mission of

Pinnacle Living is

Enriching Life’s Journey

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TABLE OF CONTENTS Page

Introduction ................................................................................................................................................... 1 Continuing Care Provider ............................................................................................................................. 1 Officers, Directors, Trustees, Managing and General Partners and Certain Persons Who Hold Equity or Beneficial Interests ....................................................................................................................................... 2 Business Experience ..................................................................................................................................... 3 Acquisition of Goods and Services ............................................................................................................... 4 Criminal, Civil and Regulatory Proceedings ................................................................................................ 4 Ownership of Real Property ......................................................................................................................... 5 Location and Description of Real Property .................................................................................................. 5 Affiliations with Religious, Charitable or Other Not-For-Profit Organizations; Not-For-Profit Tax Status of Provider .................................................................................................................................. 6 Services Provided by Pinnacle Living Under Continuing Care Contracts ................................................... 7 Services Provided Under Continuing Care Contracts to Residents Except Residents Residing at Cedarfield ..................................................................................................................................................... 7 Services Provided Under Continuing Care Contracts to Residents at Cedarfield ........................................ 7 Fees Required of Residents........................................................................................................................... 8 For Communities other than Cedarfield ....................................................................................................... 8 Hermitage Roanoke ...................................................................................................................................... 9 Hermitage Eastern Shore ............................................................................................................................ 10 Hermitage Northern Virginia ...................................................................................................................... 12 Hermitage Richmond .................................................................................................................................. 15 Lydia Roper Home ..................................................................................................................................... 15 Fees at Cedarfield ....................................................................................................................................... 15 Reserve Funding ......................................................................................................................................... 20 Certified Financial Statements .................................................................................................................... 20 The WindsorMeade Financial Restructuring .............................................................................................. 20 Pro Forma Income Statement of Income and Expenses ............................................................................. 21 Explanation of Material Differences ........................................................................................................... 21 Admission of New Residents ...................................................................................................................... 22 Access to Community and Services ............................................................................................................ 23 Procedure By Which a Resident May File a Complaint or Disclose Concern............................................ 23 Continuing Care Contract (Residency Agreement) at Cedarfield .............................................................. 25 Schedule A .................................................................................................................................................. 44 Preferred Choice (Residency Agreement) at Cedarfield............................................................................. 47 Schedule A .................................................................................................................................................. 67 Schedule B .................................................................................................................................................. 78 Certificate of Entrance ................................................................................................................................ 81 Surety Agreement ....................................................................................................................................... 85

Exhibits Exhibit A – Consolidated Financial Report – May 31, 2018 Exhibit B – Pro Forma Statement of Activities – Fiscal Year Ending May 31, 2019

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INTRODUCTION Nearly three years ago, our Board of Directors and other Leaders began to question whether the name Virginia United Methodist Homes, Inc. continues to be the best name for our organization as we move into the future. We asked: Does our name position our organization to continue to excel? We sought insight and direction from our residents, our prospective residents and our team members. We learned there was a general agreement that a number of words in our current name are unappealing and even exclusive. Armed with our research findings and the blessing of our key stakeholders, we began to search for a new name. For more than two years our team explored over 400 potential options as we searched for a name that have us all something to live up to. Our new Mission, Enriching Life’s Journey, reflects the way we want the people we serve to live, to add value and to explore meaning every day at any age. When we tested a few select names, one clear choice rose above the rest. We are now Pinnacle Living. CONTINUING CARE PROVIDER The continuing care provider is Pinnacle Living, a dba for Virginia United Methodist Homes, Inc. Pinnacle Living is a Virginia not-for-profit, non-stock corporation with its business address at 5101 Cox Road, Suite 225, Glen Allen, Virginia 23060. Pinnacle Living provides a continuum of care at five of its communities throughout Virginia and residential care at its assisted living facility in Norfolk, Virginia, as follows: Hermitage Roanoke 1009 Old Country Club Road Roanoke, Virginia 24017-0339 Hermitage Eastern Shore 23610 North Street Onancock, Virginia 23417-2024 Hermitage Northern Virginia 5000 Fairbanks Avenue Alexandria, Virginia 22311-1241 Hermitage Richmond 1600 Westwood Avenue Richmond, Virginia 23227-4682 Cedarfield 2300 Cedarfield Parkway Richmond, Virginia 23233-1938 Lydia Roper Home 127 E. 40th Street Norfolk, Virginia 23504-1099 Pinnacle Living is the sole member of WindsorMeade Williamsburg (“WindsorMeade”), which owns and operates the following community:

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WindsorMeade 3900 Windsor Hall Drive Williamsburg, Virginia 23188 Although it is a sole member of WindsorMeade, Pinnacle Living is not responsible for the obligations of WindsorMeade. OFFICERS, DIRECTORS, TRUSTEES, MANAGING AND GENERAL PARTNERS, AND CERTAIN PERSONS WHO HOLD EQUITY OR BENEFICIAL INTERESTS The names and business addresses of the officers of Pinnacle Living are: Christopher P. Henderson, President/CEO 5101 Cox Road, Suite 225 Glen Allen, Virginia 23060

Lisa F. Han, Chairperson 142 W. York Street, Suite 605 Norfolk, Virginia 23510

Jane G. Hornbeck, Vice Chairperson 5101 Cox Road, Suite 225 Glen Allen, Virginia 23060 William H. Peterson, Secretary 5101 Cox Road, Suite 225 Glen Allen, Virginia 23060 The names and addresses of the directors of Pinnacle Living are: Brenda S. Brooks 5101 Cox Road, Suite 225 Glen Allen, Virginia 23060 Kevin W. Bruny 512 Greene Ridge Road Henrico, VA 23229 Shirley M. Cauffman 5101 Cox Road, Suite 225 Glen Allen, Virginia 23060 Lisa F. Han 142 W. York Street, Suite 605 Norfolk, Virginia 23510 Christopher P. Henderson 5101 Cox Road, Suite 225 Glen Allen, Virginia 23060

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Steven R. Jones 5101 Cox Road, Suite 225 Glen Allen, Virginia 23060

Benjamin J. Lambert, IV 919 E. Main Street, 21st Floor Richmond, Virginia 23219

F. Ellen Netting 9534 Oldhouse Drive Richmond, VA 23238 William H. Peterson

5101 Cox Road, Suite 225 Glen Allen, Virginia 23060 Bishop Sharma D. Lewis – Ex Officio P.O. Box 5606 Glen Allen, Virginia 23058 Pinnacle Living has no trustees, no managing or general partners. No person has a ten percent (10%) or greater equity or beneficial interest in Pinnacle Living. Pinnacle Living has no members. The Directors of Pinnacle Living are elected as follows:

• Nominated by a Nominating Committee of the Board of Directors • Elected by the Board of Directors

BUSINESS EXPERIENCE OF; ACQUISITION OF GOODS AND SERVICES FROM; AND CRIMINAL, CIVIL AND REGULATORY PROCEEDINGS AGAINST THE PROVIDER; ITS OFFICERS, DIRECTORS, TRUSTEES, MANAGING AND GENERAL PARTNERS; CERTAIN PERSONS WHO HOLD EQUITY OR BENEFICIAL INTERESTS; AND THE MANAGEMENT

A. BUSINESS EXPERIENCE Pinnacle Living has substantial experience in the operation of the community at 1600 Westwood Avenue, Richmond, Virginia since 1948; the community at 5000 Fairbanks Avenue, Alexandria, Virginia since 1962; the community at 127 East 40th Street, Norfolk, Virginia since 1963; the community at 1009 Old Country Club Road, Roanoke, Virginia since 1964; the community at 23610 North Street Onancock, Virginia since 1966; and the community at 2300 Cedarfield Parkway, Richmond, Virginia since 1996.

With its incorporation in 1945, Pinnacle Living embarked on a journey of providing homes and services to seniors throughout the Commonwealth, from Richmond to Alexandria in Northern Virginia, to Onancock on the Eastern Shore, to Roanoke in the Shenandoah Valley, to Tidewater in Norfolk, from there back to Richmond’s suburbs and, most recently, the Williamsburg area as the sole member of WindsorMeade which created a beautiful community in James City County.

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Throughout these 72 years, the communities have changed, the industry has changed, the well-being and expectations of the residents have changed, but Pinnacle Living’s commitment to its residents and the enhancement of their lives has remained constant. The experience in the operation or management of similar communities by the Directors and Officers of Pinnacle Living is as follows:

Director Member of Board Since

Brenda S. Brooks 2014 Kevin W. Bruny 2017 Shirley M. Cauffman 2016 Lisa F. Han 2015 Christopher P. Henderson 2005 Jane G. Hornbeck 2016 Steven R. Jones 2017 Benjamin J. Lambert, IV 2013 F. Ellen Netting 2017

William H. Peterson 2011 Officer Experience Christopher P. Henderson President/CEO since 2005

Lisa F. Han Chairperson since 2018 Member since 2015 Jane G. Hornbeck Vice Chairperson since 2018 Members since 2016 William H. Peterson Secretary since 2014 Member since 2011

B. ACQUISITION OF GOODS AND SERVICES Neither Pinnacle Living nor any of its officers or directors has any interest, indirectly or directly, in any professional services, firm, association, foundation, trust, partnership, or other legal entity, in which such person has, or which has in such person, a 10% or greater interest and which it is presently intended will or may provide goods, leases or services to Pinnacle Living of a value of $500.00 or more within any year.

C. CRIMINAL, CIVIL AND REGULATORY PROCEEDINGS Neither Pinnacle Living nor any of its officers or directors:

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(1) has been convicted of a felony or pleaded nolo contendere to a criminal charge, or been held liable or enjoined in a civil action by final judgement, if the crime or civil action involved fraud, embezzlement, fraudulent conversion, or misappropriation of property or moral turpitude; or

(2) is subject to an injunctive or restrictive order of a court of record, or within the past five years had any state or federal license or permit suspended or revoked as a result of an action brought by a governmental agency or department, arising out of or relating to business activity or health care, including, without limitation, actions affecting a license to operate a foster care facility, nursing home, retirement home, home for the aged or facility registered under this chapter or similar laws in another state; or

(3) is currently the subject of any state or federal prosecution, or administrative investigation involving

allegations of fraud, embezzlement, fraudulent conversion, or misappropriation of property.

OWNERSHIP OF REAL PROPERTY

The real property on which Pinnacle Living’s five continuing care communities and one assisted living facility are located is titled in the name of Pinnacle Living.

LOCATION AND DESCRIPTION OF REAL PROPERTY

A. HERMITAGE RICHMOND The real property is located at 1600 Westwood Avenue, Richmond, Virginia, and consists of a four-story brick building containing the residential area, the Health Care Center, a chapel, social hall, dining room and other amenities. Although licensed for greater occupancy, the community currently operates 144 Independent Living and Assisted Living residences and 79 Health Care residences.

B. HERMITAGE NORTHERN VIRGINIA The real property is located at 5000 Fairbanks Avenue, Alexandria, Virginia, and consists of two buildings attached by an underground walkway. The residential building is an eight-story building with a penthouse and contains administrative offices, a chapel, social hall, dining room and other support service offices. Although licensed for greater occupancy, the community currently operates 117 Independent Living and Assisted Living residences and 96 Health Care residences. The Health Care Center is a six-story building licensed for 121 beds, and contains administrative and therapy offices.

C. HERMITAGE ROANOKE The real property is located at 1009 Old Country Club Road, Roanoke, Virginia, and consists of four apartment buildings, cottages and a three-story masonry main complex. The building contains a chapel, social hall, dining room and other amenities. Although licensed for greater occupancy, the community currently operates 26 Independent Living residences, 53 Assisted Living residences and 22 Health Care residences.

D. HERMITAGE EASTERN SHORE The real property is located at 23610 North Street, Onancock, Virginia, and consists of a one-story brick building. The building contains a chapel, library, social hall, dining room and other amenities. Although licensed for greater occupancy, the community currently operates 60 Independent Living and Assisted Living residences and 33 Health Care residences.

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E. CEDARFIELD

The real property is located at 2300 Cedarfield Parkway, Richmond, Virginia. The campus consists of 85 cottages and a masonry main building complex. The community contains a chapel, library, fellowship hall, swimming pool and other amenities. Although licensed for greater occupancy, the community currently operates 311 Independent Living residences, 65 Assisted Living residences and 60 Health Care residences.

F. LYDIA ROPER HOME The real property is located at 127 East 40th Street, Norfolk, Virginia, and consists of a three-story brick building. Although licensed for greater occupancy, the community currently operates 27 Assisted Living residences. There is no Health Care Center.

AFFILIATIONS WITH RELIGIOUS, CHARITABLE OR OTHER NOT-FOR-PROFIT ORGANIZATIONS; NOT-FOR-PROFIT TAX STATUS OF PROVIDER

A. AFFILIATIONS Pinnacle Living is recognized as an independent, not-for-profit, public charity as well as a non-private foundation under §501(c)(3) and §509(a) of the Internal Revenue Code. Pinnacle Living is not subject to the control of the Virginia Annual Conference of The United Methodist Church. Neither the Virginia Annual Conference of The United Methodist Church, the United Methodist Association of Health and Welfare Ministries, the Department of Health and Welfare Ministries of the Board of Global Ministries of The United Methodist Church, nor The United Methodist Church is, nor will be, responsible for the financial or contractual obligations of Pinnacle Living. Likewise, Pinnacle Living is not, and will not be, responsible for the financial or contractual obligations of the Virginia Annual Conference of The United Methodist Church, the United Methodist Association of Health and Welfare Ministries, the Department of Health and Welfare Ministries of the Board of Global Ministries of The United Methodist Church or The United Methodist Church. The foregoing organizations are related to Pinnacle Living by faith, heritage, history, morals and guiding principles. Pinnacle Living is the sole member of WindsorMeade, a Virginia, not-for-profit, non-stock corporation which is also recognized as a public charity and non-private foundation under §501(c)(3) and §509(a) of the Internal Revenue Code. WindsorMeade operates a continuing care retirement community in Williamsburg, Virginia under the names “WindsorMeade Williamsburg” and/or “WindsorMeade”.

Pinnacle Living is the sole member of the Hermitage Capital & Reserve Corp. (HCRC), a Virginia, not-for-profit, non-stock corporation exempt from taxation under §501(c)(3) of the Internal Revenue Code and a “supporting organization” within the meaning §509(a) of the Internal Revenue Code. HCRC was formed exclusively to support Pinnacle Living, its affiliate WindsorMeade and any future affiliates of Pinnacle Living or WindsorMeade.

Pinnacle Living is a member of Leading Age Virginia, an affiliate of Leading Age, a national organization which provides support and education primarily to not-for-profit entities serving seniors. Cedarfield, Hermitage Richmond, Hermitage Northern Virginia, Hermitage Eastern Shore and Hermitage Roanoke are fully accredited by the Commission on Accreditation of Rehabilitation Facilities/Continuing Care Accreditation Commission (CARF/CCAC). Founded in 1966, CARF/CCAC is an independent, not-for-profit accreditor of health and human service providers.

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B. TAX EXEMPT STATUS OF PROVIDER

Pinnacle Living is a corporation exempt from taxation under Internal Revenue Code §501(c)(3) and is permitted to receive charitable donations which, under ordinary gifting circumstances, are tax deductible to the donor. Under Internal Revenue Code regulations for tax exempt entities, no earnings may be used for the benefit of, nor distributed to, corporate directors, officers or private individuals. All excess funds remain available to be used by Pinnacle Living to further its mission of Enriching Life’s Journey.

SERVICES PROVIDED BY PINNACLE LIVING UNDER CONTINUING CARE CONTRACTS

Pinnacle Living offers a variety of services at its communities. Pinnacle Living continues to accept residents under continuing care contracts at the Cedarfield community in the Richmond area. As such, Cedarfield residents are charged an entrance fee and monthly fees for continuing care for the life of the resident (independent living, assisted living and nursing care services on the same campus), subject to the terms and limitations of the contract.

Pinnacle Living no longer provides continuing care to residents under continuing care contracts at Hermitage Richmond.

Pinnacle Living presently provides continuing care at the following four of its six communities under existing continuing care contracts; Cedarfield, Hermitage Eastern Shore, Hermitage Northern Virginia and Hermitage Roanoke. Pinnacle Living no longer accepts residents under continuing care contracts at any Pinnacle Living community other than Cedarfield. Residents of such other Pinnacle Living communities enter into term service agreements for the level of services they select.

A. SERVICES PROVIDED UNDER CONTINUING CARE CONTRACTS TO RESIDENTS EXCEPT RESIDENTS AT CEDARFIELD Pinnacle Living no longer accepts residents under continuing care contracts at any Pinnacle Living community other than Cedarfield. Current residents of Pinnacle Living communities other than Cedarfield receive services in accordance with the continuing care contracts they previously entered into with Pinnacle Living.

B. SERVICES PROVIDED UNDER CONTINUING CARE CONTRACTS TO RESIDENTS AT CEDARFIELD

Pinnacle Living offers two types of residency agreements at Cedarfield: (i) the standard Residency Agreement and (ii) the Preferred Choice Residency Agreement. A sample of each Agreement is included in this Disclosure Statement. Services are listed in the residency agreements in the following Sections:

Independent Living Services – Section C.1 of standard Agreement; Section C.1 and Schedule A of Preferred Choice Agreement.

Life Care Services – Section B.3 of standard Agreement; Section C.3 of Preferred Choice Agreement.

Assisted Living Services – Section C.3(a) of standard Agreement; Section C.3 of Preferred Choice Agreement.

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Memory Support Services – Section C.3(b) of standard Agreement; Section C.4 of Preferred Choice Agreement.

Health Care Services – Section C.3(c) of standard Agreement; Section C.5 of Preferred Choice Agreement.

FEES REQUIRED OF RESIDENTS

Because Pinnacle Living no longer accepts continuing care contracts in any of its communities other than Cedarfield, the following information regarding fees is intended primarily for the benefit of prospective and current residents of Pinnacle Living’s Cedarfield community and current residents of Pinnacle Living’s other communities who have previously entered into continuing care contracts with Pinnacle Living.

A. FOR COMMUNITIES OTHER THAN CEDARFIELD

Pinnacle Living no longer provides continuing care to residents under continuing care contracts at Hermitage Richmond. Although Pinnacle Living no longer accepts new residents under continuing care contracts at any community other than Cedarfield, residents receive continuing care under existing continuing care contracts at Hermitage Eastern Shore, Hermitage Northern Virginia and Hermitage Roanoke. Continuing care residents of these three communities paid a one-time entrance fee at the time of move-in, which cannot be increased after admission. Entrance Fees are not escrowed and have been used in the payment of operating costs.

Monthly fees are charged, the amount of which is dependent upon the level of service and the type of residence selected.

The monthly fees are intended to provide for the regularly offered services and conveniences, as well as all other financial obligations and objectives of Pinnacle Living including, for example, taxes, debt service, costs of operations, maintaining the viability and marketability of the communities, maintaining and improving the quality of services provided, enhancing and expanding the communities when expansion is warranted, and maintaining reserves to assist residents, where appropriate, who may become unable to meet their financial obligations. The monthly fees may be adjusted by Pinnacle Living, in its sole discretion, from time to time after thirty days advance written notice. There are no limitations on the amount, or frequency, of increases in monthly fees.

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HERMITAGE ROANOKE FEE SCHEDULE

(Pinnacle Living no longer accepts new residents under continuing care contracts at Hermitage Roanoke)

RESIDENTIAL AND ASSISTED LIVING RESIDENCES

APARTMENT TYPE MONTHLY FEES DAILY FEES

Independent Living Rates Country Club Apartments - Two Bedroom - Single $1,480.00 $49.00 Country Club Apartments - Two Bedroom - Double $1,830.00 $60.00

Assisted Living Base Rates Studio $2,700.00 $89.00 One Bedroom Single $3,435.00 $113.00 One Bedroom Double $4,145.00 $136.00 Two Bedroom Single $4,290.00 $141.00 Two Bedroom Double $5,000.00 $164.00

Assisted Living Service Tiers Fees Medication Management $400.00 $13.00

Tier 1 $600.00 $20.00 Tier 2 $1,200.00 $40.00 Tier 3 $1,995.00 $66.00

Health Care Rates Semi-Private $225.00 Private $252.00

Over the last five years, the frequency and average dollar amount of increase in monthly fees for continuing care contracts at Hermitage Roanoke have been:

Average Dollar Amount of Increase

Frequency Apartment Assisted Living Health Care 14-15 24 64 59 15-16 21 67 192 16-17 38 70 182 17-18 40 102 213 18-19 16 (417) 213

Note: Historically, these changes have occurred in June of each year

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HERMITAGE EASTERN SHORE FEE SCHEDULE

(Pinnacle Living no longer accepts new residents under continuing care contracts at Hermitage Eastern Shore)


This schedule of fees shows the monthly and daily rates for the Term Residency Agreement.

INDEPENDENT LIVING MONTHLY RATES DAILY RATES Studio Residence $4,165.00 $137.00 One Bedroom Residences First Person Rate $5,000.00 $164.00 Second Person Rate $1,240.00 $41.00 RESIDENTIAL LIVING Studio Residence $4,850.00 $160.00 One Bedroom Residences First Person Rate $5,685.00 $187.00 Second Person Rate $1,925.00 $63.00 ASSISTED LIVING TIER #1 Studio Residence $5,690.00 $187.00 One Bedroom Residences First Person Rate $6,525.00 $215.00 Second Person Rate $2,765.00 $91.00 ASSISTED LIVING TIER #2 Studio Residence $6,620.00 $218.00 One Bedroom Residences First Person Rate $7,455.00 $245.00 Second Person Rate $3,695.00 $121.00 HEALTH CENTER Private $7,775.00 $256.00 Semi-Private $7,055.00 $232.00 Four Person Suite $6,415.00 $211.00

The monthly and daily fees are subject to escalation based on current economic conditions. Residents are charged for higher levels of service as of the date the services begin.

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Fees at Eastern Shore (Continued): Over the last five years, the frequency and average dollar amount of increase in monthly fees for continuing care contracts at Hermitage Eastern Shore have been:

Average Dollar Amount of Increase (Decrease)

Frequency Apartment Assisted Living Health Care 14-15 N/A 71 106 15-16 N/A 107 165 16-17 N/A 100 165 17-18 N/A 144 198 18-19 N/A 148 105

Note: Historically, these changes have occurred in June of each year.

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HERMITAGE NORTHERN VIRGINIA FEE SCHEDULE (Pinnacle Living no longer accepts new residents under continuing care contracts at Hermitage Northern Virginia)


A one-time non-refundable community fee of $5,800 is due prior to move in.

RESIDENTIAL/INDEPENDENT LIVING MONTHLY FEE

Studio Residence Stratford - Single Room and Bath $3,345.00

One Bedroom Residences Arlington - One Bedroom, One Bath, Compact Kitchenette $4,125.00 Berkeley - One Bedroom, One Bath with Kitchenette $4,460.00 James - One Bedroom, One Bath, Full Kitchen $4,725.00 Carlyle - One Bedroom, One Bath, Walk-in Kitchenette $5,075.00 Westover - One Bedroom, One & Half Baths, Full Kitchen $5,200.00 Two Bedroom Residences Fairfax - Two Bedrooms, One & Half or Two Baths, Full Kitchen $5,570.00 Loudon - Two Bedrooms, Two Baths, Full Kitchen $5,680.00 Richmond - Two Bedrooms, Two Baths, Full Kitchen $5,970.00 Tidewater - Two Bedrooms, Two Baths, Full Kitchen $6,040.00 Williamsburg - Two Bedrooms, Two Baths, Full Kitchen, Study $6,100.00 Second Person Monthly Fee $1,095.00

ASSISTED LIVING MEDICATION MANAGEMENT MONTHLY FEE Studio Residence

Stratford - Single Room and Bath $3,960.00 One Bedroom Residences Arlington - One Bedroom, One Bath, Compact Kitchenette $4,740.00 Berkeley - One Bedroom, One Bath with Kitchenette $5,075.00 James - One Bedroom, One Bath, Full Kitchen $5,340.00 Carlyle - One Bedroom, One Bath, Walk-in Kitchenette $5,690.00 Westover - One Bedroom, One & Half Baths, Full Kitchen $5,815.00 Two Bedroom Residences Fairfax - Two Bedrooms, One & Half or Two Baths, Full Kitchen $6,185.00 Loudon - Two Bedrooms, Two Baths, Full Kitchen $6,295.00 Richmond - Two Bedrooms, Two Baths, Full Kitchen $6,585.00 Tidewater - Two Bedrooms, Two Baths, Full Kitchen $6,655.00 Williamsburg - Two Bedrooms, Two Baths, Full Kitchen, Study $6,715.00 Second Person Monthly Fee $1,410.00

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Fees at Northern Virginia (Continued):

ASSISTED LIVING TIER #1 MONTHLY FEE Studio Residence

Stratford - Single Room and Bath $4,380.00 One Bedroom Residences Arlington - One Bedroom, One Bath, Compact Kitchenette $5,160.00 Berkeley - One Bedroom, One Bath with Kitchenette $5,495.00 James - One Bedroom, One Bath, Full Kitchen $5,760.00 Carlyle - One Bedroom, One Bath, Walk-in Kitchenette $6,110.00 Westover - One Bedroom, One & Half Baths, Full Kitchen $6,235.00 Two Bedroom Residences Fairfax - Two Bedrooms, One & Half or Two Baths, Full Kitchen $6,605.00 Loudon - Two Bedrooms, Two Baths, Full Kitchen $6,715.00 Richmond - Two Bedrooms, Two Baths, Full Kitchen $7,005.00 Tidewater - Two Bedrooms, Two Baths, Full Kitchen $7,075.00 Williamsburg - Two Bedrooms, Two Baths, Full Kitchen, Study $7,135.00 Second Person Monthly Fee $1,635.00

ASSISTED LIVING TIER #2 MONTHLY FEE Studio Residence

Stratford - Single Room and Bath $4,790.00 One Bedroom Residences Arlington - One Bedroom, One Bath, Compact Kitchenette $5,570.00 Berkeley - One Bedroom, One Bath with Kitchenette $5,905.00 James - One Bedroom, One Bath, Full Kitchen $6,170.00 Carlyle - One Bedroom, One Bath, Walk-in Kitchenette $6,520.00 Westover - One Bedroom, One & Half Baths, Full Kitchen $6,645.00 Two Bedroom Residences Fairfax - Two Bedrooms, One & Half or Two Baths, Full Kitchen $7,015.00 Loudon - Two Bedrooms, Two Baths, Full Kitchen $7,125.00 Richmond - Two Bedrooms, Two Baths, Full Kitchen $7,415.00 Tidewater - Two Bedrooms, Two Baths, Full Kitchen $7,485.00 Williamsburg - Two Bedrooms, Two Baths, Full Kitchen, Study $7,545.00 Second Person Monthly Fee $2,170.00 ASSISTED LIVING TIER #3 MONTHLY FEE Studio Residence

Stratford - Single Room and Bath $5,165.00 One Bedroom Residences Arlington - One Bedroom, One Bath, Compact Kitchenette $5,945.00 Berkeley - One Bedroom, One Bath with Kitchenette $6,280.00 James - One Bedroom, One Bath, Full Kitchen $6,545.00 Carlyle - One Bedroom, One Bath, Walk-in Kitchenette $6,895.00 Westover - One Bedroom, One & Half Baths, Full Kitchen $7,020.00 Two Bedroom Residences Fairfax - Two Bedrooms, One & Half or Two Baths, Full Kitchen $7,390.00 Loudon - Two Bedrooms, Two Baths, Full Kitchen $7,500.00 Richmond - Two Bedrooms, Two Baths, Full Kitchen $7,790.00 Tidewater - Two Bedrooms, Two Baths, Full Kitchen $7,860.00 Williamsburg - Two Bedrooms, Two Baths, Full Kitchen, Study $7,920.00

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Fees at Northern Virginia (Continued): Second Person Monthly Fee

$2,820.00 RESPITE SERVICES*

Residence is a fully furnished Stratford apartment. Personal care supplies and beauty shop services are an additional cost.

DAILY FEES

Residential Living

$135.00

Assisted Living Medication Management $155.00

Assisted Living Tier #1

$175.00


$200.00


NA

BENJAMIN SMITH HEALTH CARE CENTER**

MONTHLY RESPITE Semi-private $9,145.00 $300.00/day Private $10,040.00 $350.00/day Deluxe Private $11,680.00 NA

* An initial application fee of $150 is required of first-time guests. ** A reduced rate is offered residents with a split-residency agreement.

Over the last five years, the frequency and average dollar amount of increase in monthly fees for continuing care contracts for the Traditional Plan at Hermitage Northern Virginia have been:


Frequency Apartment Assisted Living Health Care

14-15 N/A 108 33 15-16 N/A 318 123 16-17 N/A 115 278 17-18 N/A 160 260 18-19 N/A 160 260

Note: Historically, these changes have occurred in June each year. Beginning in fiscal year 06-07 Resident Semi-Private Apartments for Independent Living were combined with Resident Apartments.

Over the last five years, the frequency and average dollar amount of increase in monthly fees for continuing care contracts for the Modified Plan at Hermitage Northern Virginia have been:

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Frequency Apartment Assisted Living Health Care 14-15 N/A N/A 33 15-16 N/A 50 123 16-17 N/A 170 222 17-18 N/A 165 380 18-19 N/A 245 190

Note: Historically, these changes have occurred in June each year.

Over the last five years, the frequency and average dollar amount of increase in monthly fees for continuing care contracts for the Standard Plan at Hermitage Northern Virginia have been:


Frequency Apartment Assisted Living Health Care 14-15 N/A 113 117 15-16 N/A 109 109 16-17 N/A 110 160 17-18 N/A 245 230 18-19 N/A 165 100


HERMITAGE RICHMOND

Pinnacle Living no longer provides continuing care to residents under continuing care contracts at Hermitage Richmond.

LYDIA ROPER HOME

Lydia Roper Home is an assisted living facility; Pinnacle Living does not provide continuing care at this facility.

B. FEES AT CEDARFIELD

Pinnacle Living offers two types of continuing care contracts (residency agreements) at Cedarfield: (i) the standard Residency Agreement and (ii) the Preferred Choice Residency Agreement. A sample of each Agreement is included in this Disclosure Statement.

Under the standard Residency Agreement, residents contract for lifetime residency and services, including certain Health Services at no additional cost (as specifically described in the Agreement).

Under the Preferred Choice Residency Agreement, residents pay a lower Entrance Fee and Monthly Fee, and pay additional fees for Health Services, as needed (as specifically described in the Agreement).

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The services provided under the Preferred Choice Residency Agreement, and the associated fees, may be “Bundled” or “Unbundled”, as more fully described in the Schedule A attached to the Agreement.

Residents of the Cedarfield community pay a one-day time Entrance Fee at the time of admission, which cannot be increased after admission. Entrance Fees are not escrowed and have been used in the payment of operating costs. See Sections D, E, F and G of each Residency Agreement for more information concerning Entrance Fees, including refunds of Entrance Fees.

Monthly Service Fees are charged, the amount of which will be dependent upon the residence selected. See Sections D, F and G of each Residency Agreement and Schedule A of the Preferred Choice Residency Agreement for other information concerning Monthly Service Fees and other charges, including refunds of Monthly Service Fees and finance charges for late payments.

The Monthly Service Fees are intended to provide for the regularly offered services and conveniences as well as all other financial obligations and objectives of Pinnacle Living including, for example, taxes, debt service, costs of operations, maintaining the viability and marketability of the communities, maintaining and improving the quality of services provided, enhancing and expanding the communities when expansion is warranted, and maintaining reserves to assist residents, where appropriate, who may become unable to meet their financial obligations. The Monthly Service Fees may be adjusted by Pinnacle Living, in its sole discretion, from time to time after thirty days advance written notice. There are no limitations on the amount, or frequency, of increases in the Monthly Service Fees. The Entrance Fees and Monthly Service Fees for the Cedarfield community are shown below (such Fees are expected to increase for future residents from time to time). Residents may reserve their residence by making a 20% deposit. The balance of the Entrance Fee shall be due at the time residency is established.

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CEDARFIELD FEE SCHEDULE

LIFECARE FEE SCHEDULE MONTHLY FEES ENTRANCE FEES

APARTMENTS Single Double* Single Double* Addison Master Studio $2,731.00 - $174,705.00 - Adams 1 Bedroom with Balcony $3,137.00 $4,780.00 $231,600.00 $303,600.00 Boatwright 1 Bedroom $3,137.00 $4,780.00 $232,410.00 $304,410.00 Derbyshire 1 Bedroom $3,535.00 $5,178.00 $282,855.00 $354,855.00 Franklin 1 Bedroom with Den $3,535.00 $5,178.00 $281,785.00 $353,785.00 Harrison 1 Bedroom with Den/Balcony $3,551.00 $5,194.00 $284,650.00 $356,650.00 Jefferson 1 Bedroom with Den/Bay Window $3,590.00 $5,233.00 $288,465.00 $360,465.00 Kavanaugh 1 Bedroom with Den/Half Bath $3,676.00 $5,319.00 $300,085.00 $372,085.00 Kensington 1 Bedroom with Den $3,535.00 $5,178.00 $316,475.00 $388,475.00 Keswick 1 Bedroom with Den/Balcony/Half Bath $3,840.00 $5,483.00 $316,475.00 $388,475.00 Queensmill 2 Bedrooms with Large Balcony $4,177.00 $5,820.00 $348,065.00 $420,065.00 Quioccasin 2 Bedrooms with Balcony $4,177.00 $5,820.00 $348,065.00 $420,065.00 Robinson 2 Bedrooms $4,190.00 $5,833.00 $349,255.00 $421,255.00 Stuart 2 Bedrooms with Bay Window $4,347.00 $5,990.00 $361,150.00 $433,150.00 Tuckahoe 2 Bedrooms $4,517.00 $6,160.00 $375,410.00 $447,410.00 University 2 Bedrooms with Double Balcony $4,556.00 $6,199.00 $378,675.00 $450,675.00 Valentine 2 Bedrooms with Balcony $4,576.00 $6,219.00 $382,535.00 $454,535.00 Westham 2 Bedrooms with Large Balcony $4,615.00 $6,258.00 $386,100.00 $485,100.00 Yorkshire 2 Bedrooms with Den/Balcony $5,515.00 $7,158.00 $487,530.00 $559,530.00

COTTAGES Single Double* Single Double* Patterson 2 Bedrooms $4,914.00 $6,557.00 $411,345.00 $483,345.00 Patterson-D 2 Bedrooms (Duplex) $4,914.00 $6,557.00 $411,345.00 $483,345.00 Grove 2 Bedrooms with Den $5,643.00 $7,286.00 $539,555.00 $611,555.00 Grove-D 2 Bedrooms with Den (Duplex) $5,643.00 $7,286.00 $539,555.00 $611,555.00 Windsor 3 Bedrooms $6,083.00 $7,726.00 $600,620.00 $672,620.00

The above fees are for Standard Declining Refund Plan. Other refundable plans are available. *Includes second person fee of: Monthly Fee - $1,643 / Entrance Fee - $72,000

Prices and policies are subject to change. Additional fees may apply due to the modification of square footage or location of accommodation.

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Fees at Cedarfield (Continued):

PREFERRED CHOICE FEE SCHEDULE MONTHLY FEES ENTRANCE FEES

APARTMENTS Bundled* Unbundled* Single Double* Addison Master Studio $2,405.00 $1,774.00 $133,020.00 - Adams 1 Bedroom with Balcony $2,811.00 $2,040.00 $176,015.00 $198,015.00 Boatwright 1 Bedroom $2,811.00 $2,040.00 $176,930.00 $198,930.00 Derbyshire 1 Bedroom $3,208.00 $2,297.00 $214,740.00 $236,740.00 Franklin 1 Bedroom with Den $3,208.00 $2,297.00 $214,290.00 $236,290.00 Harrison 1 Bedroom with Den/Balcony $3,226.00 $2,308.00 $216,105.00 $238,105.00 Jefferson 1 Bedroom with Den/Bay Window $3,265.00 $2,333.00 $218,770.00 $240,770.00 Kavanaugh 1 Bedroom with Den/Half Bath $3,351.00 $2,390.00 $227,580.00 $249,580.00 Kensington 1 Bedroom with Den $3,208.00 $2,297.00 $240,010.00 $262,010.00 Keswick 1 Bedroom with Den/Balcony/Half Bath $3,513.00 $2,495.00 $240,010.00 $262,010.00 Queensmill 2 Bedrooms with Large Balcony $3,852.00 $2,715.00 $263,970.00 $285,970.00 Quioccasin 2 Bedrooms with Balcony $3,852.00 $2,715.00 $263,970.00 $285,970.00 Robinson 2 Bedrooms $3,863.00 $2,724.00 $264,870.00 $286,870.00 Stuart 2 Bedrooms with Bay Window $4,021.00 $2,824.00 $274,815.00 $296,815.00 Tuckahoe 2 Bedrooms $4,192.00 $2,937.00 $285,665.00 $307,655.00 University 2 Bedrooms with Double Balcony $4,231.00 $2,961.00 $288,150.00 $310,150.00 Valentine 2 Bedrooms with Balcony $4,250.00 $2,974.00 $291,090.00 $313,090.00 Westham 2 Bedrooms with Large Balcony $4,289.00 $2,999.00 $293,800.00 $315,800.00 Yorkshire 2 Bedrooms with Den/Balcony $5,189.00 $3,584.00 $319,005.00 $341,005.00

COTTAGES Bundled* Unbundled* Single Double Patterson 2 Bedrooms $4,589.00 $3,193.00 $329,630.00 $351,630.00 Patterson-D 2 Bedrooms (Duplex) $4,589.00 $3,193.00 $329,630.00 $351,630.00 Grove 2 Bedrooms with Den $5,317.00 $3,668.00 $431,645.00 $453,645.00 Grove-D 2 Bedrooms with Den (Duplex) $5,317.00 $3,668.00 $431,645.00 $453,645.00 Windsor 3 Bedrooms $5,757.00 $3,953.00 $480,495.00 $502,495.00

*Second person fees: Bundled Monthly Fee - $1,431 / Unbundled Monthly Fee - $917 / Entrance Fee - $22,000

HEALTH SERVICES

Program Per Diem Rate Special Care $211

Assisted Living $243 Level of Care 1 $251 Level of Care 2 $259 Level of Care 3 $267 Health Care $362 / $270

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This per diem pricing information applies only to Preferred Choice residents and community residents who have signed the term agreement. Not applicable to Lifecare residents. Per diem admissions are available at these levels of care when space is available. Prices and policies are subject to change. Over the last five years, the frequency and average dollar amount of increase in monthly fees for continuing care contracts at Cedarfield have been:


Frequency Apartment Cottage Assisted Living Special Care Health Care 14-15 94 127 182 (1,430) 243 15-16 96 105 180 156 267 16-17 99 109 184 160 275 17-18 101 137 183 152 274 18-19 113 154 273 183 298


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RESERVE FUNDING Pinnacle Living does not provide secured or “earmarked” reserve funding or security (including escrow accounts, trust or reserve funds) to guaranty that it will fully perform its obligations under its continuing care contracts. However, Pinnacle Living operates under a business and financial model that it believes to be very conservative and tested through more than 70 years of experience. In addition, Pinnacle Living maintains significant investment reserves. Pinnacle Living follows generally accepted accounting principles for not-for-profit entities. Please refer to Note 1 of the Consolidated Financial Statements for the years ended May 31, 2018 and May 31, 2017, for information concerning the accounting treatment by Pinnacle Living of Entrance Fees and earned income from continuing care residents. Annually, Pinnacle Living revalues the liability to annuitants by utilizing actuarial tables. For funds on hand, Pinnacle Living’s Board of Directors establishes an Investment Policy and selects a financial institution to make investment decisions based upon the guidelines in the approved investment policy. James Scott, of AON Hewitt, along with Sandy Wiggins, of the Actuarial Consulting Group, serve as the investment consultants. Mr. Scott and Mr. Wiggins assist the Board as they develop appropriate investment policies. Mr. Scott has over 40 years of experience and Mr. Wiggins has over 27 years of experience in capital markets. CERTIFIED FINANCIAL STATEMENTS Independent auditors annually audit consolidated financial statements for Pinnacle Living and WindsorMeade (Pinnacle Living is the sole member of WindsorMeade). Attached are certified consolidated financial statements of Pinnacle Living and WindsorMeade including balance sheets, statements of activities and statements of cash flows for the two most recent fiscal years. These consolidated financial statements conform to generally accepted accounting principles, and have been certified by an independent certified public accountant, whose opinion is also included. The section immediately following titled “the WindsorMeade Financial Restructuring” contains further, material information regarding the restructuring of the financial affairs of WindsorMeade. THE WINDSORMEADE FINANCIAL RESTRUCTURING In May 2013, WindsorMeade emerged from a voluntary Chapter 11 reorganization, resulting in significant debt reduction and improving WindsorMeade’s financial and business models (the “Restructuring”). The Restructuring was completed in only 92 days – a testament to collaboration among all stakeholders, who shared a desire to protect residents’ interests and quickly restore WindsorMeade to financial stability. In fall 2012, WindsorMeade began the process of restructuring its debt obligations due to resident occupancy challenges caused by the 2008 economic and housing market collapse. In February 2013, WindsorMeade reached an agreement with a majority of its secured creditors to restructure and refinance its existing debt obligations. To implement the Restructuring, WindsorMeade pursued a voluntary Chapter 11 reorganization proceeding with the U.S. Bankruptcy Court for the Eastern District of Virginia, Richmond Division (the Court) and filed with the Court a Chapter 11 plan of reorganization (the Plan). The Plan was approved by an overwhelming majority of affected creditors and confirmed by the Court, and financial transactions provided for in the Plan were closed on May 31, 2013. On September 20, 2013, the Court entered its Final Decree, closing the bankruptcy case.

As a part of the Restructuring, WindsorMeade’s prior senior debt, which exceeded $61 million, was reduced to below $39 million, with payments spread over 30 years. Subordinated debt of $9.7 million was also issued. During the Restructuring, WindsorMeade and its advisors engaged in extensive financial analysis leading to the development of business plans and financial models suited to the post-recession economy from which the Plan was developed.

Following the Restructuring, WindsorMeade began planning the construction of Manchester House (an 18 residence Memory Support Household) and the renovation and expansion of Hadley House (a 22 residence Health Care Household). Such construction and renovation began in August 2016 in conjunction with issuance of new financing. The new financing consisted of a loan up to $7,000,000 in the form of a tax-exempt term note issued to

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STI Institutional & Government, Inc. by WindsorMeade with a guarantee agreement entered into by Pinnacle Living, its sole member. The note was secured on parity with WindsorMeade’s Economic Development Authority of James City County, Virginia, Residential Care Facilities Revenue Bonds (Virginia United Methodist Homes of Williamsburg, Inc.) Series 2013 A, B and C Senior Bonds and a Pinnacle Living Revolving Loan. The purpose of the loan was to construct Manchester House, renovate Hadley House to a household model, and increase the number of its health care residences by 10. Construction was completed September 2017.

With the Restructuring, WindsorMeade removed almost $38 million of debt from its balance sheet, allowing it to move forward under a rigorously tested business/financial model geared to the new economy. WindsorMeade enjoys the liquidity support of a revolving credit facility.

To date, WindsorMeade’s operations have outperformed the projections developed as part of the plan of reorganization. Overall occupancy for the community has improved significantly since the restructuring. As of May 31, 2018, 177 of 181 (97%) Independent Living Residences were occupied.

Further information about the Restructuring is available upon request. Information related to the continuing disclosure provided by WindsorMeade and the Trade Activity for the WindsorMeade bonds is posted regularly to a website controlled by the Municipal Securities Rulemaking Board. The MSRB can found at: http://emma.msrb.org. The CUSIP number for the Senior Secured Bonds is 47029WCC9, and the CUSIP number for the Subordinate Bonds is 47029WCD7. PRO FORMA STATEMENT OF INCOME AND EXPENSES

Exhibit B at the end of this Disclosure Statement is the pro forma statement of income and expenses for Pinnacle Living for the fiscal year ending May 31, 2018. The pro forma statement of income and expenses is developed as part of Pinnacle Living’s annual budgeting process. Expected income from monthly fees is estimated based on expected occupancy levels. Income and expenses from non-operating items are conservatively estimated. Contributions and investment income are estimated and compared to the average of the past five years’ actual experience. Income from Entrance Fees estimated based on historical performance.

Expenses represent staffing and anticipated changes at present cost levels with a scheduled cost of living increase for the year. Food, medical and other service costs are based on past experience with increases for inflation. Buildings and grounds costs reflect anticipated costs for the year.

In addition, the major assumptions upon which this pro forma statement is based include maintaining, at a minimum, current occupancy in existing facilities and the absence of material, unanticipated change in the cost of services, energy, and other basic requirements beyond an allowance for inflation. Interest expense for Cedarfield follows the Series 2012 and Series 2017 Senior Bonds principal and interest schedule as outlined in the offering statements. Investment income assumes interest earned at 2.5% or less.

EXPLANATION OF MATERIAL DIFFERENCES BETWEEN PRIOR FISCAL YEAR’S PRO FORMA INCOME STATEMENT AND THE ACTUAL RESULTS OF OPERATIONS DURING THE PRIOR FISCAL YEAR

Operating revenues are lower than projected in the pro-forma statement. Overall, actual occupancy was 95% to anticipated occupancy. Offsetting this was higher than expected revenue from amortization of deferred revenue from entrance fees due to terminated income as well higher than expected income received from ancillary and other operating income.

http://emma.msrb.org/

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Operating expenses were higher than anticipated due to increased staffing as well as continued salary adjustments with LPSs and CNAs. Contract Services was higher due to costs incurred with agency expenses for nursing and security. Dining Services continues to escalate due to inflation on the cost of food as well increases in dining hours as Pinnacle Living continues to move to a resident centered model. Buildings and Grounds had costs increase from utilities and non-capitalizable renovations to the buildings. Other increases in expenses include Information Technology and Fund Development.

These losses were offset with Income Received from Bequests and Contributions Received, Investment Income and Realized Gains on Investments. However, Beneficial Interest in Trusts, Permanently Restricted was reduced as the fair market value calculation of those trusts decreased as interest rates adjusted downward in the market.

These line items are further detailed in the audited financial statements located in Exhibit A of this Disclosure statement.

ADMISSION OF NEW RESIDENTS TO CEDARFIELD

A. Independent Living 1. A minimum age of sixty-two (62) is required at the time of application.

2. At the time of move-in to independent living, the applicant must meet Pinnacle Living’s standards for living independently as a Resident. These standards are:

a. exhibiting the ability to exit the building

b. securing the approval of the applicant’s physician and the community’s Interdisciplinary Care Team

3. The applicant must demonstrate the ability to meet the cost of care.

4. Pinnacle Living may refuse an application on the basis that approval of the application may interfere with the providing of the proper level of service to present Residents.

B. Assisted Living 1. A minimum age of sixty-two (62) is required at the time of application.

2. Direct admission to assisted living is limited to the availability of space. At the time of admission to assisted living, the applicant must provide information in order that the community may determine the level of care the applicant requires.

3. The applicant must secure the approval of the applicant’s physician and the community’s Interdisciplinary Care Team.


5. Pinnacle Living may refuse an application on the basis that approval of the application may interfere with the providing of the proper level of care to present Residents.

C. Health Care

1. A minimum age of sixty-two (62) is required at the time of application.

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2. Direct admission to the Health Care Center is limited to the availability of beds. At the time of admission to the Health Care Center, the applicant must provide information in order that the community may determine the level of care the applicant requires.

3. The applicant must secure the approval of the applicant’s physician and the community’s Interdisciplinary Care Team


5. Pinnacle Living may refuse an application on the basis that approval of the application may interfere with the providing of the proper level of care to present Residents.

ACCESS TO COMMUNITY AND SERVICES

Pinnacle Living does not offer its services to persons who do not have an agreement with Pinnacle Living. Invited guests may visit for the day by registration.

PROCEDURE BY WHICH A RESIDENT MAY FILE A COMPLAINT OR DISCLOSE CONCERNS

A Resident may file a complaint or disclose any concern, in writing, as follows:

1. The complaint or concern should first be submitted in writing to the appropriate department director who will provide a written response within fifteen (15) days.

2. In the event the Resident’s complaint or concern is not resolved by the department director within such fifteen (15) day period, the Resident may submit the complaint or concern in writing to the Executive Director who will provide a written response within fifteen (15) days.

3. In the event the Resident’s complaint or concern is not resolved by the Executive Director within such

fifteen (15) day period, the Resident may submit the complaint or concern to the appropriate ombudsman.

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RESIDENCY AGREEMENT

September 2018

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TABLE OF CONTENTS

RESIDENCY AGREEMENT

Page

A. Acceptance for Residency .......................................................................................................... 29 B. Residence, Residency and Life Care Services ............................................................................ 29 C. Services to Residents .................................................................................................................. 30 D. Fees ............................................................................................................................................. 32 E. Recession or Termination of This Agreement Before Residency is Established ....................... 35 F. Termination of Residency After Residency is Established ........................................................ 35 G. Refunds ....................................................................................................................................... 36 H. Insurance .................................................................................................................................... 38 I. Joint and Several Liability .......................................................................................................... 38 J. Transfer From Your Residence .................................................................................................. 39 K. Reassignment of a Residence By Us .......................................................................................... 39 L. Disposition of Property............................................................................................................... 40 M. Financial Obligations and Subsidies........................................................................................... 40 N. Marriage of Resident After Establishing Residency .................................................................. 41 O. Nature of Payments/No Ownership Interest ............................................................................... 41 P. Personal Representative for Incapacity ...................................................................................... 42 Q. Right of Entry ............................................................................................................................. 42 R. Loss or Damage to Property or Person ....................................................................................... 42 S. Entire Agreement and Modification ........................................................................................... 42 T. Severability ................................................................................................................................. 43 U. Governing Law and Cost of Enforcement .................................................................................. 43 V. Non-Waiver of Breach ............................................................................................................... 43 W. Assignability ............................................................................................................................... 43 Schedule A ........................................................................................................................................... 44

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CEDARFIELD RESIDENCY AGREEMENT

This is an Agreement between Insert Resident(s) Name(s) (either “Resident”, “Joint Resident(s)”, “You” or “Your”) and Pinnacle Living (either “Pinnacle Living”, “Our”, “We” or “Us”), a Virginia, not-for-profit, non-stock corporation. (If two people sign this Agreement, this is a Joint Residency Agreement, and the term “You” shall refer to each person individually, and to both persons together, as the context may dictate). You acknowledge receipt of a copy of the Application for Residency and the Disclosure Statement. The Application for Residency (including the financial, health and related documents submitted by You in relation thereto) is, by this reference, made part of this Agreement.

A. ACCEPTANCE FOR RESIDENCY

Subject to the terms and conditions of this Agreement, We agree to provide You with lifetime residency and services at Our community located in Henrico County, Virginia, known as Cedarfield (or the “Community”), in an available independent residence of Your choice and, if needed, personal care services in the Assisted Living Center and/or nursing care services in the Health Care Center and/or memory support services as required for the duration of Your life. You agree to comply with the terms of this Agreement and Our policies and procedures, as they may be modified from time to time, provided they are consistent with the main purpose and objectives of this Agreement. You also agree to provide updated health and financial information and documentation to Us from time to time upon Our request and to inform Us immediately of any material change in Your health or financial condition. If Your financial position substantially deteriorates, You may be required to deposit monies as security for the payment of future Monthly Service Fees.

B. RESIDENCE, RESIDENCY AND LIFE-CARE SERVICES

1. Your Residence

You shall have a personal, non-assignable right to reside in the residence which You have reserved (“Your Residence”). Your Residence is type Insert Residence Type, number Insert Residence Number You may decorate and furnish Your Residence as You deem appropriate. Appliances and special equipment will be subject to the prior approval of Our Executive Director. You may arrange to make physical changes to Your Residence with the prior written approval of Our Executive Director. You will be responsible for the cost of materials and labor required to make such changes. When You vacate Your Residence, You will be responsible for any costs incurred in restoring Your Residence to its original condition, reasonable wear and tear excepted. Title to all fixtures added as part of the foregoing will immediately vest in Us and will remain Our property after termination or rescission of this Agreement. Notwithstanding any other provision of this Agreement, any such decorations, furnishings or changes must be in compliance with all applicable safety and governmental codes and regulations as well as Our written policies and procedures, which may change from time to time.

2. Establishing Residency You agree to establish residency (“Residency”) within sixty (60) days of the date You receive a fully executed copy of this Agreement signed by Us unless otherwise mutually agreed in writing. You “establish Residency” by paying the balance of the total Entrance Fee and the Monthly Service Fee for the first month of Residency or part thereof. (You may not occupy Your Residence until such Fees have been paid, although You will not be required to occupy Your Residence physically in order

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to establish “Residency). If You fail to establish Residency within the applicable time period, You will forfeit the right to occupy or possess the residence that You have reserved. Once Residency has been established, it shall continue until terminated in accordance with the terms hereof.

3. Life-Care Services You shall have the right throughout Your lifetime to receive “Life-Care Services”, as follows: a. reside in Your Residence;

b. receive services as a resident; and

c. receive personal care services upon admission to the Assisted Living Center and/or nursing care

services upon admission to the Health Care Center and/or the Special Care Center (SCC) (collectively, “Health Services”).

C. SERVICES TO RESIDENTS

The Monthly Service Fee includes access to amenities, certain services (listed below) and some meals. There shall be no change in the scope of care and services without 30 days prior notice to You unless there is a change in Your level of care as provided in this Agreement. Three meals daily are available, but basic fees will pre-pay only a certain number of meals per month. 1. Services presently included in the Monthly Service Fee:

a. 30 meals per month, except three meals per day in Assisted Living, Health Care and Special

Care;

b. basic housekeeping weekly;

c. weekly flat linen service;

d. all utilities except telephone;

e. access to Wifi;

f. maintenance of Residence and grounds;

g. transportation, in accordance with written policies;

h. Assisted Living Care, Special Care and Health Care services, as provided in this Agreement;

i. security;

j. emergency call system;

k. scheduled activities;

l. use of common area facilities;

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m. maintenance of appliances furnished by Us; and

n. temporary tray service, if ordered by the Health Care Team Members.

2. Additional Services available at extra cost: a. additional housekeeping;

b. additional resident meals and guest meals;

c. extra linen or laundry services, if and as provided in Cedarfield policies;

d. telephone services;

e. basic cable television (billed monthly at community rate);

f. premium cable television upgrades;

g. extra transportation services;

h. outside activities and any transportation related to them;

i. supplies and materials for activities, if required;

j. beautician and barber services;

k. physical therapy;

l. guest rooms;

m. required medical services not covered under the Health Care Program; and

n. special diets.

3. Health Services

The following health services are presently available at no additional cost. The Interdisciplinary Care Team will determine, in consultation with the Medical Director, whether such services are appropriate for You and, if so, the proper location for the provision of such services. (The Interdisciplinary Care Team typically includes a registered nurse, dietitian, social worker and activities coordinator, and may include other Cedarfield team members). a. Assisted Living Services

The Assisted Living services are designed for those who are unable to function independently in an independent Residence, but do not need continuous medical supervision. Assisted Living Residents receive those services listed in Section C.1 and help in dressing, self-care and other activities of daily living, assistance in attending meals, increased assistance in housekeeping, increased monitoring of personal status, monitoring of medications, more frequent linen service and assistance with personal laundry.

b. Memory Support Services Special Care residents receive those services listed in Section C.1 and help in dressing, self-care and other activities of daily living, assistance in attending meals, increased assistance in

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housekeeping, increased monitoring of personal status, monitoring of medications, more frequent linen service and assistance with personal laundry. There is a strong emphasis in recreational therapy and providing resources such as support groups for those residents.

c. Health Care Services Health Care Center Residents receive those services listed in Section C.1 commensurate with their condition and other services varying with their needs, the highest level of which is total nursing care in accordance with the Rules and Regulations for Licensed Nursing Homes promulgated by the Virginia Department of Health. Your Monthly Service Fee will include all normal and routine services associated with a licensed nursing facility. The services provided do not include companions, private duty nursing and certain specialized technical care. If You require services that cannot be given at Cedarfield, such as dangerously contagious disease, specialized psychiatric care, legal insanity and any other condition requiring services prohibited under the license of the Health Care Center, We will assist You in transferring to an appropriate facility.

4. No private duty nurse or companion shall be employed by You without prior approval of Our Executive Director, in his or her sole discretion, and any such nurse or companion must comply with all applicable policies and procedures.

5. The services provided in the Assisted Living Center, the Health Care Center and/or the Special Care Center shall not cover the cost of medical care, such as hospitalization, professional medical services by an attending physician, drugs, medical supplies, medical equipment, transportation incident to medical care, and expenses of private duty nurses or companions employed by You. You are encouraged to carry adequate health insurance to cover these health related expenses. Further, You are responsible for paying charges of any physician, physical therapist, speech therapist, occupational therapist, dentist, podiatrist, psychologist, psychiatrist or other health professional regardless of whether You arrange for such services or We make the arrangements for You; and You are also responsible for all charges for Your medicine, drugs, lab services, x-rays, food supplements, durable medical equipment, personal care supplies and other health related items.

6. All Residents are required to carry Medicare Insurance Parts A and B and a Medicare Supplement,

or the equivalent of such coverage. We reserve the right to require evidence of such insurance coverage.

D. FEES

You agree to pay the following fees to Us as a condition of Your Residency: 1. Entrance Fee

You agree to pay to Us, before establishing Residency, an Entrance Fee as shown below in either Section (a), (b) or (c). Select one option by indicating in the appropriate space. In the event of failure to indicate either Section (a), Section (b) or Section (c), this Agreement shall be treated in all respects as though You selected Section (a), the Declining Refund Entrance Fee. The Entrance Fee shall be payable according to Section (d) below. There shall be no restrictions on Our use of the Entrance Fee, and the Entrance Fee shall not be changed except as specifically stated in this Agreement.

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� a. A Declining Refund Entrance Fee in the amount of $ . Part of the Entrance Fee paid will be refunded to You if you move from Cedarfield and terminate this Agreement within forty-eight (48) months after You have established Residency. The amount of the refund will be reduced (i) four percent (4%) of the Entrance Fee assessed at the beginning of the term of this Agreement as an Administrative Fee and (ii) for each month or partial month of Residency at the rate of two percent (2%) of the Entrance Fee per month until the balance is zero. If this is a Joint Residency Agreement, see Section G.4.

� b. A 50% Guaranteed Refund Entrance Fee in the amount of $ . No less than fifty percent (50%) of the Entrance Fee paid will be refunded to You upon termination of this Agreement. The refund will be an amount equal to the Entrance Fee paid less (i) four percent (4%) of the Entrance Fee assessed at the beginning of the term of this Agreement as an Administrative Fee and (ii) two percent (2%) of the Entrance Fee for each full or partial month of Residency through the twenty-third (23rd) month, at which time the refund will reach fifty percent (50%) of the Entrance Fee. It will remain a constant fifty percent (50%) thereafter, regardless of the length of Residency at Cedarfield. Any unpaid charges will be deducted from the refund. If this is a Joint Residency Agreement, see Section G.4.

� c. A 70% Guaranteed Refund Entrance Fee in the amount of $ . No less than seventy percent (70%) of the Entrance Fee paid will be refunded to You upon termination of this Agreement. The refund will be an amount equal to the Entrance Fee paid less (i) four percent (4%) of the Entrance Fee assessed at the beginning of the term of this Agreement as an Administrative Fee and (ii) two percent (2%) of the Entrance Fee for each full or partial month of Residency through the thirteenth (13th) month, at which time the refund will reach seventy percent (70%) of the Entrance Fee. It will remain a constant seventy percent (70%) thereafter, regardless of the length of Residency at Cedarfield. Any unpaid charges will be deducted from the refund. If this is a Joint Residency Agreement, see Section G.4.

d. The Entrance Fee, as determined above, is payable as follows:

(i) A deposit of $ (the “Deposit”), equal to 20% of the total Entrance Fee, is due when You sign this Agreement and return it to Us.

(ii) The remaining balance of $ is due within sixty (60) days from the date You signed this Agreement.

e. Refunds of the Entrance Fee, if any, shall be determined in accordance with the foregoing provisions and with Section G of this Agreement. To the extent required by Virginia law, the Deposit (i) shall be placed in an escrow account to be held, maintained and disbursed by the escrow agent (which shall be a bank, trust company or other escrow agent approved by the State Corporation Commission of Virginia); (ii) shall remain Your fund, shall be maintained separate and apart from Our funds, and shall not be subject to claims against Us; and (iii) shall only be invested in accordance with investments permitted by the Code of Virginia, such as obligations of the United States Government and its agencies, obligations of the Commonwealth of Virginia, bankers’ acceptances and certain high grade corporate bonds.

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2. Monthly Service Fee

You agree to pay Us each month, starting with the month You establish Residency, a Monthly Service Fee applicable to Your Residence, prorated in the event Residency is established after the first day of the month.

a. The initial Monthly Service Fee for Your Residence is $ ; provided, however, that if You execute this Agreement more than thirty days prior to establishing Residency, the initial Monthly Service Fee may be adjusted as provided below in subsection D.2.d (We will give You at least thirty days advance written notice of such adjustment). You agree to pay the Monthly Service Fee (as adjusted) on or before the first day of each month of Your Residency.

b. The Monthly Service Fee stated above is based on Residency by person(s). If this is a Joint Residency Agreement, the Monthly Service Fee includes a Second Person Monthly Service Fee of $ . In such case, each of You will be jointly and severally liable for the full amount of the Monthly Service Fee (including the Second Person Monthly Service Fee). In the event of termination of this Agreement with respect to one of the Joint Residents, the Monthly Service Fee relative to the remaining Joint Resident will thereafter be reduced by the amount of the Second Person Monthly Service Fee; provided that both Joint Residents shall remain jointly and severally liable for full payment of the reduced Monthly Service Fee as provided in Section V hereof.

c. The Monthly Service Fee is due and payable on the first day of each month of Residency. If it is not paid on or before the fifth day of each month, in addition to any other obligations hereunder, You agree to pay a FINANCE CHARGE at the rate of NINE PERCENT per annum (9% APR) until the Monthly Service Fee is paid in full.

d. The Monthly Service Fees are intended to provide for the regularly offered services and conveniences as well as all other financial obligations and objectives of Pinnacle Living including, for example, taxes, debt service, costs of operations, maintaining the viability and marketability of the communities, maintaining and improving the quality of services provided, enhancing and expanding the communities when expansion is warranted, maintaining reserves to assist residents, where appropriate, who may become unable to meet their financial obligations. The Monthly Service Fees may be adjusted by Us, in Our sole discretion, from time to time, after thirty days advance written notice. There are no limitations on the amount, or frequency, of increases in the Monthly Service Fees.

e. You will not receive any refund of any portion of the Monthly Service Fee unless this

Agreement is terminated. Such refund, if any, will be calculated in consideration of the effective date of such termination or permanent transfer; provided, however, that if this is a Joint Residency Agreement, see Section G.6 herof.

f. You will be billed for additional services that are not covered by the Monthly Service Fee, either

at the time they are rendered or with Your next Monthly Service Fee statement. The fees for such additional services may change from time to time. Subject to the foregoing, payment procedures for fees for such additional services, including imposition of finance charges, will be the same as for Your Monthly Service Fee.

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E. RESCISSION OR TERMINATION OF THIS AGREEMENT BEFORE RESIDENCY IS ESTABLISHED

1. Rescission Without Cause

You have the right to rescind this Agreement without penalty or forfeiture by delivering written notice to Us within seven (7) days after the last of the following to occur:

a. making the 20% Deposit,

b. signing this Agreement, or

c. receipt of this Agreement fully executed by Us.

If, during such seven (7) day period, You die or become incapacitated to the degree that You no longer qualify for independent Residency, this Agreement shall be deemed automatically rescinded by You.

If this Agreement is rescinded within that seven (7) day period for any reason, You will receive a full refund of the Deposit. You shall not be required to move into Your Residence before the expiration of the seven (7) day period. If this is a Joint Residency Agreement and one Joint Resident rescinds within the seven (7) day period for any reason, this Agreement will be rescinded with regard to both Joint Residents.

2. Rescission or Termination of the Agreement After Seven (7) Days but Before Residency is Established:

a. Voluntary Termination

If, after the seven (7) day period described in Section E.1. above, but prior to establishing Residency, You give Us written notice of Your decision not to establish Residency, or if You fail to establish Residency within sixty (60) days (or another period of time otherwise agreed to in writing), this Agreement shall be deemed terminated by You (Voluntary Termination). If this is a Joint Residency Agreement, Voluntary Termination by one Joint Resident shall be deemed a Voluntary Termination by both Joint Residents; provided that the other Joint Resident may make application for non-Joint Residency. Refunds shall be paid to You in accordance with Section G hereof.

b. Rescission by Death or Incapacity

If, after the seven (7) day period described above, but prior to establishing Residency, You die or because of illness, injury or incapacity, You no longer qualify for independent Residency, this Agreement shall be deemed automatically rescinded by You. If this is a Joint Residency Agreement, such an automatic rescission shall be deemed to apply to both Joint Residents. Refunds shall be paid to You in accordance with Section G hereof.

F. TERMINATION OF RESIDENCY AFTER RESIDENCY IS ESTABLISHED

1. Death of a Resident

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If there is only one Resident who is party to this Agreement, or if there is only one surviving Joint Resident, this Agreement shall be automatically terminated upon the death of that person after Residency has been established. The effective date of such termination shall be the date of that Resident’s death. If this is a Joint Residency Agreement, the death of one Joint Resident after Residency has been established shall not terminate the rights and obligations of the remaining Joint Resident under this Agreement; provided, however, that the Joint Resident terminating this Agreement shall also remain obligated to Us as provided in Section I, below.

2. Termination by Resident

You may terminate Residency at any time by giving Us written notice. The Monthly Service Fee will be due for a period of forty-five (45) days after the date that You give Us written notice of termination, or the date that You physically vacate Your Residence (including removal of Your personal property), whichever last occurs. You shall receive a refund of any portion of the Monthly Service Fee to which You may be entitled if the effective date of termination is not on the last day of a month. In the case of Joint Residency, if one person discontinues Residency voluntarily, the remaining Resident shall retain the obligations and rights of this Agreement. The Monthly Service Fee, in such case, will be reduced by the Second Person Fee then in effect.

3. Termination by Us

We shall not terminate Residency except for Good Cause. This means a determination by Us that You are a danger to Yourself or others; Your non-payment of any fees that are due; repeated conduct that interferes with other Residents’ quiet enjoyment of Cedarfield; Your persistent refusal to comply with Our reasonable written rules and regulations; a material misrepresentation made intentionally or recklessly by You in Your Application for Residency, or related materials, regarding information which, if accurately provided, would have resulted in either Your failure to qualify for Residency or a material increase in the cost of providing to You the care and services provided under this Agreement; or a material breach by You of the terms and conditions of this Agreement. We shall not terminate Residency until We have given You written notice stating the grounds of termination and a reasonable period of time for cure. The effective date of such termination shall be stated in the written notice. In the case of Joint Residency, this termination may apply to both Residents or to only one Resident, as the case may dictate; if the termination applies to only one Resident, the other Resident will have the option to retain the obligations and rights of this Agreement or to terminate this Agreement.

G. REFUNDS

Any refunds due to You under this Agreement shall be made according to the provisions of this Section.

1. Rescission Without Cause Within Seven (7) Days

If You rescind this Agreement in accordance with Section E.1. hereof, You will receive a full refund of the Deposit and other sums paid to Us.

2. Rescission or Termination After Seven (7) Days but Before Residency is Established

a. If You terminate this Agreement in accordance with Section E.2.a. hereof (“Voluntary Termination”), You will receive a full refund of the Deposit, but excluding (i) a Termination Fee of $1,000 and (ii) any costs specifically incurred by Us at Your request according to a written amendment of this Agreement. If this is a Joint Residency Agreement and one Joint

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Resident terminates under such section, this Agreement will be deemed terminated as to both Joint Residents, and the refund shall be paid jointly.

b. If rescission occurs because of death or incapacity, as described in Section E.2.b., You (or Your estate in the case of death) will receive a full refund of the Deposit, but excluding any costs specifically incurred by Us at Your request in accordance with a written amendment of this Agreement.

3. Termination After Residency is Established

In the event of termination after Residency is established, refunds shall be made in accordance with the type of Entrance Fee established in Section D.1. (see subsection G(6) for additional provisions relative to Joint Residents).

a. Declining Refund Entrance Fee

Part of the Entrance Fee paid will be refunded to You if You terminate this Agreement and physically vacate (including removal of all of Your personal property from) Cedarfield within forty-eight (48) months after You have established Residency. The amount of the refund will be reduced (i) four percent (4%) of the Entrance Fee assessed at the beginning of the term of this Agreement as an Administrative Fee and (ii) for each month or partial month of Residency until You physically vacate (including removal of all of Your personal property from) Cedarfield, at the rate of two percent (2%) of the Entrance Fee per month until the balance is zero. After Your forty-eighth (48th) month of Residency, no refund will be paid. Any unpaid charges will be deducted from the refund.

b. 50% Guaranteed Refund Entrance Fee

No less than fifty percent (50%) of the Entrance Fee paid will be refunded to You (or Your estate) upon termination of this Agreement. The refund will be an amount equal to the Entrance Fee paid less (i) four percent (4%) of the Entrance Fee assessed at the beginning of the term of this Agreement as an Administrative Fee and (ii) two percent (2%) of the Entrance Fee for each full or partial month of Residency, until You physically vacate (including removal of all of Your personal property from) Cedarfield, through the twenty-third (23rd) month of Residency, at which time the refund will reach fifty percent (50%) of the Entrance Fee. It will remain a constant fifty percent (50%) thereafter, regardless of the length of Your Residency at Cedarfield. Any unpaid charges will be deducted from the refund.

c. 70% Guaranteed Refund Entrance Fee

No less than seventy percent (70%) of the Entrance Fee paid will be refunded to You (or Your estate) upon termination of this Agreement. The refund will be an amount equal to the Entrance Fee paid less (i) four percent (4%) of the Entrance Fee assessed at the beginning of the term of this Agreement as an Administrative Fee and (ii) two percent (2%) of the Entrance Fee for each full or partial month of Residency, until You physically vacate (including removal of all of Your personal property from) Cedarfield, through the thirteenth (13th) month of Residency, at which time the refund will reach seventy percent (70%) of the Entrance Fee. It will remain a constant seventy percent (70%) thereafter, regardless of the length of Your Residency at Cedarfield. Any unpaid charges will be deducted from the refund.

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d. Monthly Service Fee

You, Your estate, or the survivor’s estate (as the case may be) shall receive a refund of a pro rata portion of the Monthly Service Fee paid for the month You die or physically vacate the premises of Cedarfield on or after the effective date of any termination of Residency. The proration shall be made according to the number of days remaining in that month.

4. Payment of Refund

In the event of rescission of this Agreement, Your Entrance Fee refund, if any, shall be paid within 60 days of the effective date of such rescission.

In the event of termination of this Agreement, Your Entrance Fee refund, if any, shall be paid within 60 days after the later of (i) the date You have physically vacated (including removal of all Your personal property from) Your Residence and (ii) the date a new resident enters a Residency Agreement with Us and pays Us the then current Entrance Fee for the Residence You have vacated.

5. Refund Payable to Trustee

Your Refund may be paid to the Trustee of an existing Trust if You have executed and delivered to Us an assignment document in such form and content as the Assignment of Refund document attached hereto as Schedule A, or such other document We deem appropriate, in Our discretion, provided such document is effective at the time such refund is due.

6. Joint Residents

Notwithstanding any other provision of this Agreement, if this is a Joint Residency Agreement, except in the case of rescission, there shall be no calculation or payment of any refund until after both Joint Residents under this Agreement cease to be Residents at Cedarfield. In such event, the calculation of the refund (if any) shall be made as though both Joint Residents ceased to be Residents as of the first date upon which neither Joint Resident is a Resident under this Agreement. Any refund due shall be paid equally to both Joint Residents, or to the estate of the last surviving Joint Resident under this Agreement, as the case may be.

H. INSURANCE

1. You agree to maintain health insurance coverage under Parts A and B of the Medicare Program; provided that, if You are not eligible for such coverage, You agree to obtain equivalent coverage in such amounts and from such carrier(s) as may be reasonably acceptable to Us.

2. We are not permitted to serve persons who are recipients of Medicaid, nor are recipients of Medicaid eligible for placement in the Health Care Center.

3. You may desire to obtain a long-term care insurance policy. We may provide an option for such coverage through one or more carriers selected by Us and make such coverage available to You for an additional charge.

I. JOINT AND SEVERAL LIABILITY

If this is a Joint Residency Agreement, each Joint Resident hereby agrees (i) to be bound jointly and severally by the terms and conditions hereof, (ii) to make provision in his or her respective estate

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planning documents (whether by will, trust, survivorship, pay-on-death, beneficiary designation or other designation) to satisfy the continuing obligations of the remaining Joint Resident under this Agreement after the death of the first Joint Resident to die, and (iii) that such obligations shall become and remain an obligation of his or her estate until satisfied. You hereby agree to provide us from time to time, upon Our request, with written evidence satisfactory to Us of Your compliance with Your obligations under this Section. In the event that one Joint Resident no longer resides in the Community, each of You, as Joint Residents, shall remain jointly liable for the full performance of this Agreement (including but not limited to payment for expenses of the remaining Joint Resident) even in the event of death, divorce or legal separation. Any contrary provision of this Agreement notwithstanding, should one of You, as a Joint Resident, die or withdraw without making provisions for the remaining Joint Resident sufficient to permit the remaining Joint Resident to independently financially qualify as a Resident after the death or withdrawal of one of You, then, in addition to being in breach of this Agreement affecting both Joint Residents, You agree that the remaining Joint Resident shall have a claim against Your estate and against any person to whom You made a transfer in violation of the duty to support Your Joint Resident under this Agreement. You acknowledge that We would not enter into this Agreement but for the assurances of both Joint Residents that each would provide for the remaining Joint Resident, and You acknowledge that one Joint Resident’s failure to do so for the other shall be deemed a “material breach” of this Agreement constituting sufficient “Good Cause” for Us to terminate this Agreement as contemplated in Section F.3 hereof and otherwise excusing Our further performance of this Agreement. This section shall survive the termination of this Agreement.

J. TRANSFER FROM YOUR RESIDENCE

1. You agree that We may transfer You to a different Residence, to the Assisted Living Center, to the Health Care Center, or to the Special Care Center when We determine, in consultation with the Interdisciplinary Care Team, that such a transfer is necessary for Your well-being. The Interdisciplinary Care Team typically includes a registered nurse, dietitian, social worker, activity coordinator and possibly other Cedarfield team members.

2. You also agree that, if You suffer any disability for which We are not permitted to provide or not capable of providing appropriate care, We shall, in consultation with the Interdisciplinary Care Team, assist in transferring You to an appropriate institution or facility.

3. There are limitations to the type of nursing care services We are able to provide. For example, if You have a dangerously contagious disease, an uncontrolled or untreated mental condition or specialized psychiatric condition, or if You require nursing care services beyond routine nursing services or any condition requiring services which are prohibited under Our licenses with the Department of Health or Department of Social Services then We will assist You in transferring to an appropriate hospital, institution or other facility.

K. REASSIGNMENT OF A RESIDENCE BY US

We may reassign Your Residence to a different resident upon the occurrence of any of the following:

1. Your failure to establish Residency within sixty (60) days of the date of this Agreement unless otherwise mutually agreed in writing.

2. The permanent vacancy of the Residence by each and every Resident having a present right to reside there. A permanent vacancy is considered to exist if:

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a. The Residency Agreement is rescinded or Residency is terminated and the Resident(s) Residence is vacated.

b. The Resident (or last remaining Joint Resident) is admitted permanently to the Assisted Living Center, the Health Care Center or Special Care Center. Should the Resident recover sufficiently to resume Independent Living at a later date, a similar or alternative Residence will be provided, subject to availability.

3. In case of a permanent transfer to the Health Care Center, Assisted Living Center, or Special Care Center, the Residence shall be deemed permanently vacated within fifteen (15) days after permanent status is determined.

4. A Resident who uses the Assisted Living Center or Health Care Center on a temporary basis will retain possession, rights and privileges for use of the Residence during that period.

L. DISPOSITION OF PROPERTY

In the event of termination or rescission of this Agreement or Your permanent transfer from Your Residence, all of Your personal property must be removed from Your Residence within fifteen (15) days thereof. If after that fifteen day period such property is not removed, We will have the right to remove the property from Your Residence and to charge You for the actual cost of storing, insuring, transporting and preserving the property, such costs not to be less than fifty dollars ($50.00) per month. We will have a lien on such property to the extent of such costs and the costs of recovering same.

M. FINANCIAL OBLIGATIONS AND SUBSIDIES

Your timely payment of all fees and other charges under this Agreement is a condition of Your Residency, and failure to pay any such fees and charges will constitute “Good Cause” for termination of Your Residency. However, We may grant You a subsidy to assist You in the payment of a portion of such fees or charges in the event We determine, in Our sole and absolute discretion, that such subsidy is appropriate. Any such subsidy will be made in accordance with Our policies and procedures then in effect, which may be changed from time to time. In no event will any such subsidy be given to any resident who impairs his or her ability to meet financial obligations, whether by gratuitous transfer (to Your spouse or to any other person or entity) or incurrence of unusual, unnecessary or extraordinary expenditures or obligations, as determined by Us in Our sole and absolute discretion. No subsidy will be granted to a remaining Joint Resident if the first Joint Resident to withdraw or die fails to provide for the remaining Joint Resident as more fully set forth in Section I above. You agree to provide Us with such financial and other information and documentation as We may request, from time to time, in Our sole and absolute discretion, to determine Your eligibility for such subsidy in accordance with the foregoing. In the event any such subsidy is granted to You, You agree as follows:

1. You will remain obligated to reimburse Us for the full amount of such subsidy, which will remain Your obligation upon termination of this Agreement and may be satisfied from or offset against any refund or other sums We may owe to You. To the extent such obligation is not satisfied as of the time of Your death, You hereby agree that it will be an obligation of Your estate.

2. You agree to accept such level of accommodations as We deem necessary, in Our sole and absolute discretion, so as not to impair our ability to meet Our financial obligations and otherwise to operate Pinnacle Living on a sound financial basis, in Our sole and absolute discretion. You agree that such accommodations may be a smaller or otherwise different from Your Residence if We deem it necessary or appropriate.

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3. You acknowledge that We are under no obligation to make or to continue any such subsidy, and that We may discontinue any such subsidy at any time in Our sole and absolute discretion.

In consideration of Our acceptance of You for Residency under this Agreement, You hereby agree not to take any action, or to omit to take any action, so as to impair Your ability to meet Your financial obligations under this Agreement, whether by gratuitous transfer to any person or entity or to incur any unusual, unnecessary or extraordinary expenditures or obligations. Expenditures for outside private duty personnel can in certain circumstances be deemed unnecessary or extraordinary. Any such act or omission by You (or on Your behalf by Your personal representative, agent or other authorized person) shall be deemed a “material breach” of this Agreement by You constituting “Good Cause” for Us to terminate this agreement as contemplated under Section F.3 hereof.

N. MARRIAGE OF RESIDENT AFTER ESTABLISHING RESIDENCY

1. If You marry another resident of Cedarfield, changes in Residences and fees shall be determined in accordance with availability and Our then current written policies.

2. If You marry a non-resident, and if Your spouse desires accommodations at Cedarfield, Your spouse must submit an Application for Residency and both You and Your spouse must submit a then current financial report. If accepted, You and Your spouse must then execute a new Agreement and pay an Second Person Entrance Fee as actuarially determined and as established by the then current Cedarfield fee schedule. If You decide, however, to move to a different Residence, subject to availability and Our then current written policies, fee adjustments will be made in accordance with the then current Cedarfield fee schedule. You and Your spouse will be treated in all respects as Joint Residents and shall, starting with the month Your spouse moves into Cedarfield, pay the Monthly Service Fee applicable for Joint Residency, with the Second Person Fee prorated if applicable.

If Your spouse does not qualify for Independent Life-Care Services at the time of establishing Residency, subject to Our then current acceptance policies, Your spouse would be required to pay the per diem rate in the Assisted Living Center, Health Care Center and/or Special Care Center if We, in consultation with the Interdisciplinary Care Team, determine that such a transfer is necessary for Your spouse’s well-being. The Interdisciplinary Care Team typically includes a registered nurse, dietitian, social worker, activity coordinator and possibly other Cedarfield team members.

O. NATURE OF PAYMENTS/ NO OWNERSHIP INTEREST

1. You and We acknowledge that the payments made by You to Us under this Agreement are intended solely as compensation to Us for providing You with residency and services, and that such payments are not intended to be a loan. However, We have not provided, nor shall We provide, any advice to You in this regard, and We urge You to seek advice and counsel from Your own legal and tax advisors regarding these matters and any income or other tax implications relating to such payments or otherwise relating to this Agreement.

2. The rights and privileges granted to You by this Agreement do not include any leasehold rights or interests nor include any right, title or interest in any part of the personal property, land, buildings or improvements owned or administered by Us. Your rights are primarily for services, with a contractual right of Residency. Any rights, privileges or benefits under this Agreement or any interest or contractual rights of any nature in Pinnacle Living and/or Cedarfield, including the right to any refund of the Entrance Fee, Your refund or other benefit or payment hereunder, are and shall be subordinate in priority, right, claim and interest to any lien, charge, mortgage or other security

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interest or agreement now or hereafter placed on or affecting Pinnacle Living and/or Cedarfield or any of Pinnacle Living’s real or personal property, and to any amendment, modification, replacement or refunding thereof.

P. PERSONAL REPRESENTATIVE FOR INCAPACITY

We strongly encourage You to make arrangements before You move into Your Residence whereby Your affairs will be managed by attorneys-in-fact or other agents with legal authority to handle Your personal, health, legal and business matters (collectively Your “personal representatives”) if You become incapacitated. You agree to have a financial power of attorney in place at all times while a resident of the Community. You agree to provide Us with the name, address and telephone number of each of Your personal representatives before You move into Your Residence, and to inform Us of any change in the identity of Your personal representatives. You also agree that either You or Your personal representatives will inform Us when Your personal representatives assume responsibility for managing Your personal, health, legal or business affairs. You agree to reimburse Us for all expenses which We may incur as the result of Your having failed to make or to keep such arrangements in place.

Q. RIGHT OF ENTRY

You agree to give Us and Our authorized team members the right of entry into Your Residence at all reasonable times for inspection, maintenance and housekeeping or storage purposes, after making arrangements with You, and at any time for emergencies.

R. LOSS OR DAMAGE TO PROPERTY OR PERSON

1. We will not be responsible for the loss or damage of any of Your personal property due to routine maintenance, housekeeping activities, theft, fire, other casualty or any other cause. Our insurance policy(ies) shall not protect You against loss or damage to Your personal property. You may desire to obtain such policy(ies) of insurance as may be appropriate to provide against theft, fire or other casualty to Your personal property.

2. You agree that neither We nor Our agents or team members will be liable for death or injury not caused by Our active negligence.

3. You agree to indemnify and hold Us and Our agents or team members harmless from and against any and all claims, demands, actions and causes of action (including any costs and attorney’s fees), whether from injury to person, loss of life or damage to property, occurring in or about Your Residence or involving You anywhere else in the Community, but only to the extent actually caused by Your negligence.

S. ENTIRE AGREEMENT AND MODIFICATION

This Agreement, including the Application for Residency (including, without limitation, the health, financial and other related documentation You provide Us), comprise the entire Agreement between You and Us. You agree that You are not relying upon any oral statements or representations made by Us which are not also set forth in this written Agreement. No amendment or special provision of this Agreement will be valid or enforceable unless set forth in a written document executed by all Residents who are parties hereto and on behalf of Pinnacle Living by Our President. We reserve the right to modify the Agreement unilaterally in order to conform to changes in the law or applicable regulations and to modify unilaterally Our rules, regulations, policies and procedures.

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T. SEVERABILITY

Except as otherwise specifically provided, the invalidity or amendment of any restriction, condition or other provision of this Agreement, or of any part thereof, shall not impair or affect in any way the validity, enforceability or effect of the rest of this Agreement.

U. GOVERNING LAW AND COST OF ENFORCEMENT

This Agreement shall be governed and construed, in all respects, in accordance with the laws of the Commonwealth of Virginia. In the event of a court controversy concerning the performance of this Agreement, the substantially prevailing party shall be allowed to collect from the other party their court costs and reasonable attorney fees.

V. NON-WAIVER OF BREACH

If in one or more instances We fail to insist that You perform any of Your obligations under this Agreement, such failure shall not be construed as a waiver of any past, present or future rights We have under this Agreement; Your obligations shall nevertheless continue in full force and effect.

W. ASSIGNABILITY

You may not assign Your rights or obligations hereunder, in whole or in part, nor may You subcontract Your right to reside in Your Residence, under any circumstances. We shall have the right to assign Our rights and obligations hereunder in whole, or in part to any successor owner or lender, either outright or as security for any indebtedness of Pinnacle Living, without Your consent. The transfer of ownership of Pinnacle Living and/or Cedarfield, or any part thereof, shall not be deemed a termination of this Agreement.

WITNESS THE SIGNATURES of the parties to this Agreement.

IN WITNESS WHEREOF, the parties have signed this Agreement this day of , 20

. Witness Residents (s) ________________________________ _______________________________ ________________________________ _______________________________

Pinnacle Living

Approved this _____________________day of By: ____________________________ ________________, 20_____.

Title:___________________________

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SCHEDULE A TO RESIDENCY AGREEMENT

PINNACLE LIVING – ASSIGNMENT OF REFUND

The undersigned Resident (“Resident”) hereby assigns, grants and conveys unto the Trustee(s) (the “Assignee”) of the Trust described below all right, title and interest in and to any and all refunds Resident is entitled to receive under that certain Residency Agreement (the “Residency Agreement”) between Resident and Pinnacle Living (“Pinnacle Living”) dated , 20 . Resident hereby acknowledges that, with regard to this Assignment: (1) It shall be Resident’s duty to notify Pinnacle Living in writing regarding any change in

the identity of the Trustee(s); (2) Upon request by Pinnacle Living, Resident (or the Trustee(s)) shall provide written

assurance satisfactory to Pinnacle Living regarding the continuing validity of the Trust and the identity and authority of the Assignee Trustee(s); and

(3) In the event of any confusion regarding the correct identity of the Assignee Trustee(s) or

Trust at the time any refund payment is due, Pinnacle Living shall be entitled, in its sole and absolute discretion, to distribute such refund(s) to Resident’s estate without liability to any person or entity.

Resident hereby acknowledges that Pinnacle Living is accepting this Assignment as a convenience to Resident and, on behalf of Resident and Resident’s heirs, distributees, beneficiaries, personal representatives, successors and assigns, Resident hereby releases Pinnacle Living and agrees to indemnify and save Pinnacle Living harmless of and from any and all claims and other liability as may arise in connection with Pinnacle Living’s compliance with the instructions contained herein. Resident acknowledges that all of Pinnacle Living’s rights and remedies hereunder shall devolve to Pinnacle Living’s successors and assigns. If this is a Joint Residency Agreement, any rescission by one Joint Resident will be deemed a rescission by both Joint Residents; provided that the other Joint Resident my enter into a new Residency Agreement so long as such other Resident then satisfies Our then current admissions Criteria independently. If two persons signed the Residency Agreement as Residents, the Residency Agreement is a Joint Residency Agreement, in which case (i) the term “Resident”, as used herein and in the Residency Agreement, shall refer to each Joint Resident individually and to both Joint Residents together, as the context may dictate, and (ii) both Residents agree to be bound jointly and severally by the terms and conditions hereof. Name of Assignee/Trustee(s): Insert Name of Assignee/Trustee(s) Name of Trust: Insert Name of Trust Effective Date of Trust: Insert Effective Date of Trust

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WITNESS the signatures of the parties. RESIDENT:

Date: ___________________________________________ Signature

Date: ___________________________________________ Signature (Joint Resident – if applicable)

ASSIGNEE/TRUSTEE:

Date: ____________________________________________ Trustee’s Signature

Date: ____________________________________________ Co-Trustee’s Signature (if Applicable) PINNACLE LIVING

Date: By:___________________________________________ Title:_________________________________________

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RESIDENCY AGREEMENT Preferred Choice

Bundled

Unbundled

Declining Refund 50% Refundable 70% Refundable

September 2018

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TABLE OF CONTENTS

RESIDENCY AGREEMENT Page

Premise ................................................................................................................................................ 51

A. Acceptance for Residency .......................................................................................................... 51

B. Residence Accommodations ...................................................................................................... 51

C. Services to Residents .................................................................................................................. 52

D. Fees............................................................................................................................................. 53

E. Rescission Before Residency is Established .............................................................................. 56

F. Termination After Residency is Established .............................................................................. 56

G. Transfer From Your Residence .................................................................................................. 58

H. Reassignment of a Residence ..................................................................................................... 62

I. Disposition of Personal Property ................................................................................................ 62

J. Financial Obligations and Subsidies .......................................................................................... 63

K. Nature of Payments .................................................................................................................... 63

L. Personal Representative for Incapacity ...................................................................................... 64

M. Right of Entry ............................................................................................................................. 64

N. Loss or Damage to Property or Person ...................................................................................... 64

O. Entire Agreement and Modification ........................................................................................... 64

P. Severability ................................................................................................................................. 65

Q. Governing Law and Costs of Enforcement ................................................................................ 65

R. Insurance .................................................................................................................................... 65

S. Non-Waiver of Breach ............................................................................................................... 65

T. No Ownership Interest................................................................................................................ 65

U. Assignability ............................................................................................................................... 65

V. Joint and Several Liability of Joint Residents ............................................................................ 66

Schedule A ........................................................................................................................................... 67

Schedule B ........................................................................................................................................... 78

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CEDARFIELD

RESIDENCY AGREEMENT

This Agreement is made and entered into by and between Insert Resident(s) Name(s) (collectively referred to as the “Resident”, “Joint Resident(s)”,“You” or “Your”) and Pinnacle Living (either “Pinnacle Living”, “Our”, “We” or “Us”), a Virginia, not-for-profit, non-stock corporation. We own and operate a continuing care retirement community known as “Cedarfield” (the “Community” or “Cedarfield”). (If two people sign this Agreement, this is a Joint Residency Agreement, and the term “You” shall refer to each person individually, and to both persons together, as the context may dictate). You acknowledge receipt of a copy of the Application for Residency, this Agreement and the Disclosure Statement. The Application for Residency (including the financial, health and related documents submitted by You in relation thereto) is, by this reference, made part of this Agreement.

A. ACCEPTANCE FOR RESIDENCY

We agree to provide You with the following residency and services in an available independent residence of Your choice, subject to the terms and conditions of this Agreement. You agree to comply with the terms of this Agreement and Our reasonable policies and procedures, as they may be modified from time to time, provided they are consistent with the provisions of this Agreement. You also agree to provide updated health and financial information and documentation to Us from time to time upon Our reasonable request, and to inform Us immediately of any material change in Your health or financial condition. If Your financial position substantially deteriorates, the Resident may be required to deposit monies as security for the payment of future Monthly Service Fees.

B. RESIDENCE ACCOMMODATIONS

1. Your Residence You will have a personal, non-assignable right to reside in the Residence which You have reserved. (“Your Residence”). Your Residence is type Insert Residence Type number Insert Residence Number . You may decorate and furnish Your Residence as You deem appropriate. Appliances and special equipment will be subject to the prior approval of Our Executive Director. You may arrange to make physical changes to Your Residence with the prior written approval of Our Executive Director. You will be responsible for the cost of materials and labor required to make such changes. When You vacate Your Residence, You will be responsible for any costs incurred in restoring Your Residence to its original condition, reasonable wear and tear excepted. Title to all fixtures added as part of the foregoing will immediately vest in Us and will remain Our property after termination or rescission of this Agreement. Notwithstanding any other provision of this Agreement, any such decorations, furnishings or changes must be in compliance with all applicable safety and governmental codes and regulations as well as Our written policies and procedures, which may change from time to time.

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2. Establishing Residency You agree to establish residency (“Residency”) within sixty (60) days after You have received a fully executed copy of this Agreement (signed by You and Us) unless otherwise mutually agreed in writing. You “establish Residency” by paying the balance of the total Entrance Fee and the Monthly Service Fee for the first month of Residency, prorated in the event Residency is established after the first day of the month. (You may not occupy Your Residence until such Fees have been paid, although You will not be required to occupy Your Residence physically in order to establish Residency). Once Residency has been established, it shall continue until terminated in accordance with the terms hereof. If You fail to establish Residency within the sixty day period, either party shall have the right to rescind this Agreement upon written notice to the other party, in which case You will forfeit the right to occupy or possess Your Residence. Once Residency has been established, it shall continue until termination in accordance with the terms hereof.

C. SERVICES TO RESIDENTS

1. Services Included in Monthly Service Fee

The Monthly Service Fee will cover Your access to amenities, certain services and meals, as described in Schedule A attached hereto. Except as otherwise specifically provided in this Agreement, there will be no change in the scope of care and services without at least thirty days prior written notice to You.

2. Additional Services

Additional Services will be available, at an additional cost, as described in Schedule A attached hereto.

3. Assisted Living Services The Assisted Living Center is designed for those who are unable to function independently in an independent Residence, but do not need continuous medical supervision. Assisted Living Residents receive those services listed in Section C.1 and help in dressing, self-care and other activities of daily living, assistance in attending meals, increased assistance in housekeeping, increased monitoring of personal status, monitoring of medications, more frequent linen service and assistance with personal laundry. If the Interdisciplinary Care Team (in consultation with the Medical Director) determines that this level of service is appropriate for You, You will be granted priority access to the Assisted Living Center over those who do not reside at Cedarfield pursuant to a Residency Agreement (“Nonresidents”), on a space-availability basis. The Interdisciplinary Care Team typically includes a registered nurse, dietitian, social worker and activities coordinator, and may include other Cedarfield team members. If You are transferred to the Assisted Living Center (as further explained in Section G.4 hereof), You agree to pay a fee for Assisted Living services (the “Assisted Living Fee”).

4. Special Care Services Special Care residents receive those services listed in Section C.1 and help in dressing, self-care and other activities of daily living, assistance in attending meals, increased assistance in housekeeping, increased monitoring of personal status, monitoring of medications, more frequent linen service and assistance with personal laundry. There is a strong emphasis in recreational therapy and providing resources such as support groups for those residents.

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If the Interdisciplinary Care Team (in consultation with the Medical Director and/or such other persons as may be required under then current Virginia law and regulations) determines that this level of service is appropriate, You will be granted priority access to the Special Care Center over Nonresidents, on a space-availability basis.

If You receive Special Care services (as further explained in Section G.4 hereof), You agree to pay the related fees (the “Special Care Center Fee”) (See Schedule A attached hereto for the current Special Care Center Fee, which Fee may change from time to time.

5. Health Care Services Health Care residents receive those services listed in Section C.1 commensurate with their condition and other services varying with their needs, the highest level of which is total nursing bed care in accordance with the Rules and Regulations for Licensed Nursing Homes promulgated by the Virginia Department of Health. Your Health Care Fee will include all normal and routine services associated with a licensed nursing facility. If the Interdisciplinary Care Team (in consultation with the Medical Director) determines that this level of care is appropriate, You will be granted priority access to the Health Care Center over Nonresidents, on a space-availability basis. If You receive Health Care Services (as further explained in Section G.4 hereof), You agree to pay a fee for Health Care Services (the “Health Care Fee”). (See Schedule A attached hereto for the current Health Care Fee, which Fee may change from time to time).

6. Services in Your Residence It may be determined that any of the foregoing services may be provided to You in Your Residence rather than in the Assisted Living Center, Special Care Center or Health Care Center (collectively the “Care Centers”). This determination may be made in consideration of reasons deemed appropriate by Us for Your care and benefit. In such event, in addition to Your Monthly Service Fee, You will pay an hourly fee based upon the level and extent of the services to be provided (See Schedule A attached hereto for the current fees for such services, which fees may change from time to time), if you participate in the Helping Hands Program.

7. Services Not Included

The care provided in the Care Centers will not include companions, private duty nurses or certain specialized technical care. Any such persons employed by You must have the prior approval of Our Executive Director, in his or her sole discretion, and must comply with all applicable policies and procedures.

D. FEES

You agree to pay the following fees to Us as a condition of Your Residency:

1. Entrance Fee

You agree to pay to Us an Entrance Fee in the amount of $ before establishing Residency. If this is a Joint Residency Agreement, the Entrance Fee includes a Second Person Entrance Fee in the amount of $ . Unless otherwise provided, any reference to the “Entrance Fee” shall be deemed to include any such Second Person Entrance Fee.

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a. The Entrance Fee shall be payable as follows:

(i) A deposit of $ (the “Deposit”) equal to 20% of the total Entrance Fee is due when You sign this Agreement and return it to Us.

(ii) The remaining balance of $ is due when or before You establish Residency.

b. To the extent required by Virginia law, the Deposit (i) shall be placed in an escrow account to

be held, maintained and disbursed by the escrow agent (which shall be a bank, trust company or other escrow agent approved by the State Corporation Commission of Virginia); (ii) shall remain Your fund, shall be maintained separate and apart from Our funds, and shall not be subject to claims against Us; and (iii) shall only be invested in accordance with investments permitted by the Code of Virginia, such as obligations of the United States Government and its agencies, obligations of the Commonwealth of Virginia, bankers’ acceptances, and certain high grade corporate bonds.

c. There shall be no restrictions on Our use of the Entrance Fee, and the Entrance Fee shall not be changed except as specifically stated in this Agreement or in an amendment of this Agreement signed by You and the President of Pinnacle Living.

d. You may receive a refund (referred to from time to time herein as “Your Refund”) of a portion

of the Entrance Fee when this Agreement is terminated, as selected from the following options:

(i) If you have selected the Declining Refund Entrance Fee option, the amount of Your Refund will be the amount of Your Entrance Fee (i) reduced by an Administrative Fee equal to 4% of the amount of Your Entrance Fee and (ii) further reduced by an amount equal to 2% of Your Entrance Fee for each month or partial month of Residency, until the remaining balance is zero. Any unpaid charges will be deducted from Your Refund. Please refer to Sections E, F and G of this Agreement for additional provisions regarding calculation and payment of Your Refund.

(ii) If you have selected the 50% Refund Entrance Fee option, the amount of Your Refund will be the amount of Your Entrance Fee (i) reduced by an Administrative Fee equal to 4% of the amount of Your Entrance Fee and (ii) further reduced by an amount equal to 2% of Your Entrance Fee for each month or partial month of Residency for the first 23 months of Your Residency, at which time the amount of Your Refund will have been reduced to 50% of Your Entrance Fee. Your Refund will remain at 50% of Your Entrance Fee for the rest of Your Residency at Cedarfield. Please refer to Sections E, F and G of this Agreement for additional provisions regarding calculation and payment of Your Refund.

(iii) If you have selected the 70% Refund Entrance Fee option, the amount of Your Refund

will be the amount of Your Entrance Fee (i) reduced by an Administrative Fee equal to 4% of the amount of Your Entrance Fee and (ii) further reduced by an amount equal to 2% of Your Entrance Fee for each month or partial month of Residency for the first 13 months of Your Residency, at which time the amount of Your Refund will have been reduced to 70% of Your Entrance Fee. Your Refund will then remain at 70% of Your Entrance Fee for the rest of Your Residency at Cedarfield. Please refer to Sections E, F and G of this Agreement for additional provisions regarding calculation and payment of Your Refund.

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e. If no refund option is selected, You will be deemed to have selected the Declining Refund Entrance Fee, option (d) (i) above.

2. Monthly Service Fee

You agree to pay Us each month, starting with the month You establish Residency, a Monthly Service Fee applicable to Your Residence and Your level of service and care, prorated in the event Residency is established after the first day of the month. a. The initial Monthly Service Fee for Your Residence is $ ; provided, however, that if

You execute this Agreement more than thirty days prior to establishing Residency, the initial Monthly Service Fee may be adjusted as provided below in subsection D.2.d (We will give

You at least thirty days advance written notice of such adjustment). b. The Monthly Service Fee stated above is based upon Residency by person(s). If this is

a Joint Residency Agreement, the Monthly Service Fee stated above includes a Second Person Monthly Service Fee of $ . In such case, each of You will be jointly and severally liable for the full amount of the Monthly Service Fee. In the event of termination of this Agreement with respect to one of the Joint Residents or the permanent transfer by one of the Joint Residents to any of the Care Centers (as explained in Sections C and G.4 hereof), the Monthly Service Fee for the resident remaining in Your Residence will be reduced by the amount of the Second Person Monthly Service Fee then in effect as of the effective date of such termination or permanent transfer.

c. The Monthly Service Fee is due within five (5) days after You have been billed. If it is not

paid within five (5) days after You have been billed, You agree to pay a FINANCE CHARGE at the rate of NINE PERCENT per annum (9% APR) until the Monthly Service Fee is paid in full.

d. The amount of the Monthly Service Fee is intended to provide for the regularly offered

services and conveniences as well as all other financial obligations and objectives of Pinnacle Living including, for example, taxes, debt service, costs of operations, maintaining the viability and marketability of the communities, maintaining and improving the quality of services provided, enhancing and expanding the communities when expansion is warranted, and maintaining reserves to assist residents who may become unable to meet their financial obligations. The Monthly Service Fee may be adjusted by Pinnacle Living, in its sole discretion, from time to time after thirty days advance written notice. There are no limitations on the amount, or frequency, of increases in the Monthly Service Fee.

e. You will not receive any refund of any portion of the Monthly Service Fee unless this

Agreement is terminated or in the event of Your permanent transfer to any of the Care Centers (as described in Section G.4 hereof). Such refund, if any, will be calculated in consideration of the effective date of such termination or permanent transfer; provided however, that if this is a Joint Residency Agreement, see Section F.3 hereof.

f. You will be billed for additional services that are not covered by the Monthly Service Fee,

either at the time they are rendered or with Your next Monthly Service Fee. The current fees for such additional services are listed in Schedule A attached hereto, and such fees may change from time to time. The payment procedures for fees for such additional services, including the imposition of finance charges, will be the same as for Your Monthly Service Fee.

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g. If You are absent from Your Residence for more than seven consecutive days, You will be entitled to a raw food credit for missed meals. If you are absent from Your Residence for more

than 90 consecutive days, You will be entitled to a credit equal to the “dining dollar” amount for each month you are absent.

E. RESCISSION BEFORE RESIDENCY IS ESTABLISHED

1. Rescission Without Cause Within Seven Days

You have the right to rescind this Agreement, without penalty or forfeiture, by delivering written notice of such rescission to Us within seven days after (i) You give us an initial deposit or (ii) You receive a fully executed copy of this Agreement (signed by You and Us), whichever occurs first.

You will not be required to establish Residency or to move into Your Residence prior to the expiration of such seven-day period.

In the event of rescission of this Agreement in accordance with this Section E.1, You will receive a full refund of the Entrance Fee within sixty days of such rescission, without penalty or forfeiture.

2. Rescission by Death or Incapacity

If, prior to establishing Residency, You die or become incapacitated by illness or injury and no longer qualify for Independent Living, this Agreement will be deemed automatically rescinded by You. The effective date of such rescission will be the date We receive written notice of Your death or incapacity.

In the event of rescission of this Agreement in accordance with this Section E.2, You will receive a full refund of the Entrance Fee within sixty days of such rescission, provided that the amount of such refund will be reduced by the amount of any costs specifically incurred by Us at Your request according to a written document signed by You and by Us.

3. Rescission After Notice of Available Residence

If You fail to establish Residency within sixty days after You receive a fully executed copy of this Agreement (signed by You and Us), either party shall have the right to rescind this Agreement upon written notice to the other party. If You rescind this Agreement, You will receive a refund of the Entrance Fee (to the extent paid by You) less an Administrative Fee equal to 4% of the full amount of the total Entrance Fee within sixty days of such rescission. If We rescind this Agreement, You will receive a full refund of the Entrance Fee (to the extent paid by You) within sixty days of such rescission.

4. Special Provision for Joint Residency Agreement

If this is a Joint Residency Agreement, any rescission by one Joint Resident before Residency is established will be deemed a rescission by both Joint Residents; provided that the other Joint Resident may enter into a new Residency Agreement so long as such other Joint Resident then satisfies Our then current admissions criteria independently.

F. TERMINATION AFTER RESIDENCY IS ESTABLISHED

1. Termination by Resident

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You may terminate Residency at any time by giving Us 30 days written notice. If You die after having established Residency, Your death will be deemed a termination of this Agreement in accordance with this Section F.1. If this is a Joint Residency Agreement and only one Joint Resident terminates Residency, the remaining Resident will retain the rights and obligations of this Agreement; provided, however, that the Joint Resident terminating this Agreement shall also remain obligated to Us as provided in Section W, Joint and Several Liability of Joint Residents, below.

In the event of termination in accordance with this Section F.1, You will receive Your Entrance Fee Refund, if any within sixty days after the later of (i) the date You have physically vacated (including removal of all of Your personal property from) Your Residence, and (ii) the date a new

resident enters into a Residency Agreement with Us and pays Us the then current Entrance Fee for the Residence You have vacated.

You may stop paying the Monthly Service Fee after such termination, as follows: a. If Your death is the cause of termination of this Agreement, You (Your estate) may stop

paying the Monthly Service Fee thereafter as of the date all of Your personal property has been removed from Your Residence; provided that, if this is a Joint Residency Agreement, the Second Person Fee shall cease as of the date of Your death (the remaining Joint Resident shall thereafter pay the single person Monthly Service Fee applicable to Your Residence).

b. If You terminate this Agreement for any reason other than Your death, You may stop paying

the Monthly Service Fee upon the date You have physically vacated (including removal of all of Your personal property from) Your Residence.

2. Termination by Us

Once You establish Residency, We will not terminate Your Residency except for Good Cause. “Good Cause” means (a) proof that You are a danger to Yourself or others; (b) Your non-payment of any monthly or periodic fees; (c) Your repeated conduct that interferes with other Residents’ quiet enjoyment of the Community; (d) Your persistent refusal to comply with Our reasonable written rules and regulations, policies and procedures or the Resident’s Handbook; (e) a material misrepresentation made intentionally by You or recklessly by You in Your Application for Residency, or any other document provided by You to Us regarding information which if accurately provided, would have resulted in either Your failure to qualify for Residency or a material increase in the cost of providing to You the care and services provided under this Agreement; or (f) a material breach by You of the terms and conditions of this Agreement. We will not terminate Your Residency until We have given You written notice stating the grounds of termination and a reasonable period of time for cure. The effective date of such termination will be stated in the written notice but will not be prior to the end of such cure period. If this is a Joint Residency Agreement, this termination may, depending upon the nature of the cause, apply to either one Joint Resident or to both and, if the termination applies to only one Joint Resident, provided the other Joint Resident then satisfies Our then current admissions criteria independently, such other Joint Resident will have the option of retaining the obligations and rights of this Agreement or terminating this Agreement.

In the event of termination in accordance with this Section F.2, You will receive Your Refund, if any, within sixty days after the later of (i) the date You have physically vacated (including removal of all Your personal property from) Your Residence, and (ii) the date a new resident enters into a Residency Agreement with Us and pays Us the then current Entrance Fee for the Residence You have vacated.

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3. Refund for Joint Residents

If this is a Joint Residency Agreement, You shall not receive Your Refund in accordance with this Section F until sixty days after (i) both of You have physically vacated (including removal of all of Your personal property from) Your Residence, and (ii) the date a new resident enters into a Residency Agreement with Us and pays Us the then current Entrance Fee for the Residence You have vacated. Unless otherwise agreed by both of You and Us in writing, Your Refund, if any, is due, shall be paid (i) in equal shares to both of You if the Residency of both of You is terminated simultaneously, or (ii) to the one of You whose Residency is terminated last if Residency is not terminated simultaneously.

4. Refund Payable to Trustee

Your Refund may be paid to the Trustee of an existing Trust if You have executed and delivered to Us an assignment document in such form and content as the Assignment of Refund document attached hereto as Schedule B, or such other document We deem appropriate, in Our discretion, provided such document is effective at the time Your Refund is due.

G. TRANSFER FROM YOUR RESIDENCE

1. You May Change Your Residence

If You desire to move from Your current Residence to another Residence at Cedarfield, subject to availability and Our then current policies and procedures, We shall use Our best efforts to accommodate such a transfer. Prior to any such transfer, You (both of You if this is a Joint Residency Agreement) must satisfy Our then current admissions criteria relative to the Residence to which You desire to transfer (Your “new Residence”).

In the event of such transfer, if the Entrance Fee applicable to Your new Residence is greater than the amount of the then current Entrance Fee applicable to the Residence from which You desire to move, You will pay the difference (the “Additional Entrance Fee”) to Us prior to such transfer. You will not receive any payment at such time if the new Entrance Fee is less than the then current Entrance Fee applicable to the Residence from which You desire to move. After such transfer, You will pay the Monthly Service Fee applicable to Your new Residence, pro-rated for the first month if such transfer occurs on any day other than the first day of the month.

In the event of any such transfer, Your new Residence shall be deemed “Your Residence” for all purposes under this Agreement unless and until You have transferred to another living accommodation in accordance with this Agreement.

In the event You pay any Additional Entrance Fee, unless otherwise agreed by You and Us in writing, any refund thereof shall be amortized at the same rate as the Entrance Fee Plan You selected in Section D.1 hereof, starting on the date of payment of such Additional Entrance Fee as though such date was the date You established Residency for the purpose of the refund of such additional Entrance Fees calculation.

2. Establishing Joint Residency With an Existing Resident

If You marry another Cedarfield resident and desire to establish Joint Residency, subject to availability and Our then current policies and procedures, We shall use Our best efforts to accommodate such arrangements. In such event, You will each be required to terminate Your

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respective, existing Residency Agreement and to execute a new (then current) Joint Residency Agreement, provided that the provisions of subsection G.1 above shall apply to Your Additional Entrance Fee, if any.

After any such transfer, You will be treated in all respects as Joint Residents and thereafter will pay the Monthly Service Fee for Joint Residency, with the Second Person Monthly Service Fee prorated for the first month, if appropriate.

3. Establishing Joint Residency With a Nonresident If You marry a person not a Cedarfield resident and desire to establish Joint Residency with Your

spouse, Your spouse must submit an Application for Residency and such other documentation as We may reasonably require in accordance with Our then current policies and procedures, and both You and Your spouse must submit a then current financial report. If Your spouse does not qualify for independent living Residency in accordance with Our acceptance policies then in effect, Your spouse will not be permitted to establish Residency at Cedarfield.

If accepted for Joint Residency, You and Your spouse must then execute a new, Joint Residency

Agreement, provided that the provisions of subsection G.1 above shall apply to Your Additional Entrance Fee, if any.

After any such transfer, You and Your spouse will be treated in all respects as Joint Residents and

thereafter will pay the Monthly Service Fee for Joint Residency, with the Second Person Monthly Service Fee prorated for the first month, if appropriate.

4. Transfer for Level of Care Reasons If You have a condition which requires care that cannot be given at Cedarfield, such as a

dangerously contagious disease, specialized psychiatric condition or any other condition requiring services which are prohibited under the licenses of the Health Care Center, Special Care Center or Assisted Living Center or which We are unable to provide to You within the Community (including by reason of lack of beds or space), We will assist You in transferring to an appropriate hospital, institution or other facility (herein an “Outside Facility”).

It is Our policy to see that You reside in an area of the Community where Your specific needs and

the appropriate level of care are available to You. The Community is organized as a “continuing care retirement community” (“CCRC”) where We have made certain assumptions in our planning that You will move seamlessly through a continuum of care and receive the appropriate level of care in the most cost-effective and efficient setting. Our Interdisciplinary Care Team (described in this Agreement) is the body that ultimately makes the determinations of the appropriate level of care for You. In making these determinations, the Interdisciplinary Care Team will consult with You and will review potential reasonable accommodations to allow You to stay on a desired level of care so long as that level of care is appropriate for You. You will not be permitted to remain on a lower level of care if We determine that it may alter the nature of Our Community as a CCRC or if We determine that it may not allow Us to provide You the appropriate level of care needed in Your particular circumstances in consideration of Your safety and security and that of other residents of the Community.

You agree that, after You have established Residency, We may transfer You to the Assisted Living Center, Special Care Center, Health Care Center (as described in Section C hereof) or to an Outside Facility at such time as We, in consultation with the Interdisciplinary Care Team (and in consultation with the Medical Director), determine that such a transfer is necessary for Your well-

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being. The Interdisciplinary Care Team, in consultation with the Medical Director and You, Your family and/or Your physician, will determine based on its criteria for evaluation and placement whether Your transfer is temporary or permanent.

a. Temporary Transfer

If You are transferred temporarily to the Assisted Living Center, Special Care Center, Health Care Center or an Outside Facility, subject to Our then current policies, unless this is a Joint Residency Agreement, Your original Residence will be held for seven (7) calendar days at no additional charge. Thereafter, the original Residence may be reserved at your request, in Our sole discretion; provided that, in such event, You will be charged the Monthly Service Fee applicable to Your original Residence as well as the Assisted Living Fee, Special Care Center Fee or Health Care Fee or the charges of an Outside Facility, as applicable.

If this is a Joint Residency Agreement and the other Joint Resident continues to occupy Your Residence during the time of such temporary transfer, such remaining Joint Resident will pay the regular single occupancy Monthly Service Fee, and the transferred Resident will pay the Assisted Living Fee, Special Care Fee, Health Care Fee or Outside Facility charges, as applicable, and any fees and charges for any additional services or items that such transferred Resident may receive.

b. Permanent Transfer

If You are transferred permanently to the Assisted Living Center, Special Care Center, Health Care Center or an Outside Facility, the following provisions will apply:

i. Single Occupancy. If You occupy Your Residence by Yourself and it has been determined that such transfer is permanent, You must vacate Your Residence (including removal of Your personal property) within fifteen days after the date We give You notice that Your transfer is permanent. When Your Residence has been vacated (including removal of Your personal property), subject to the provisions of subparagraph G.6 hereof, You will no longer be required to pay the Monthly Service Fee; instead, You will pay the Assisted Living Fee, Special Care Fee, Health Care Fee or Outside Facility charges, as applicable, and You will also be responsible for fees and charges for any additional services or items that You may receive.

If You do not vacate Your Residence (including removal of Your personal property) within fifteen days of the date We give You notice that Your transfer is permanent, You will be liable to continue to pay (i) the Monthly Service Fee for Your Residence, (ii) the Assisted Living Fee, Special Care Fee, Health Care Fee or Outside Facility charges, as applicable, (iii) any fees and charges for any additional services or items that You may receive, and (iv) Our costs of repossession of the Residence and storage of Your personal property.

ii. Joint Occupancy. If this is a Joint Residency Agreement, and it has been determined that such transfer is permanent for only one of You, the other Joint Resident will continue to occupy Your Residence. In that case, the remaining Resident will pay the regular single occupancy Monthly Service Fee, and the transferred Resident will pay the Assisted Living Fee, Special Care Fee, Health Care Fee or Outside Facility charges, as applicable, and any fees and charges for any additional services or items that such transferred Resident may receive.

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If it has been determined that such transfer is permanent for both of You, You must both vacate Your Residence (including removal of Your personal property) within fifteen days of the date We give You notice that Your transfer is permanent. If Your Residence has not been vacated by both of You (including removal of Your personal property) within fifteen days of the date We give You notice that Your transfer is permanent, You will both be jointly and severally liable to continue to pay (A) the Monthly Service Fee for Your Residence, (B) the Assisted Living Fee, Special Care Fee, Health Care Fee or Outside Facility charges, as applicable, (C) any fees and charges for any additional services or items that You may receive, and (D) Our costs of repossession of Your Residence and storage of Your personal property.

iii. Your New “Residence”. In the event of any such permanent transfer to the Assisted Living Center, Special Care Center or Health Care Center, such new living accommodation will thereafter be deemed “Your Residence” for all purposes, under this Agreement unless and until You have transferred to another living accommodation in accordance with this Agreement.

5. Disposition of Refund

a. Permanent Transfer to Outside Facility

If You are transferred permanently from Your Residence to an Outside Facility, this Agreement will automatically terminate, and You will receive payment of Your Refund, if any, within sixty days, if You selected the 50% or 70% refund contract, after the later of (i) the date You have physically vacated (including removal of all of Your personal property from) Your Residence, and (ii) the date a new resident enters into a Residency Agreement with Us and pays Us the then current Entrance Fee for the Residence You have vacated. In the event of such termination, if You later recover and wish to occupy a new Residence, You will be required to apply for Residency and, if You are accepted for Residency based upon Our then current criteria for admissions, You will be required to execute a new Residency Agreement. You will not have priority status for such Residency, nor will You have priority status for admission to the Assisted Living Center, Special Care Center or Health Care Center.

b. Permanent Transfer to Care Center

If You are permanently transferred from Your Residence to any of the Care Centers, the amount of Your Refund (if any portion then remains) shall continue to decline on a monthly basis in accordance with the provisions of Section D.1 of this Agreement.

If You are permanently transferred from Your Residence to any of the Care Centers and thereafter Your health improves so that You are able to return to Independent Living, We will provide You with the next available Residence, in accordance with the Community’s policies and procedures. Thereafter, You will be required to pay the Monthly Service Fee applicable to the Residence to which You transfer, as such Fee may be adjusted from time to time in accordance with this Agreement. You will also have priority access, on a space-availability basis, for re-admission to any of the other Care Centers, as may be appropriate for Your benefit.

6. Continuing Responsibility for Residence Vacated

Notwithstanding any other provision of this Agreement, if You transfer from Your Residence in accordance with the provisions of this Section G, the following provisions shall apply:

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a. You will be responsible for all moving and cleaning costs and the cost of restoring Your vacated Residence to its original condition, excluding ordinary wear and tear (Joint Residents shall be jointly and severally liable for such costs);

b. If You selected the 50% or 70% refund contract, Your Refund, if any, shall be paid to You within sixty days after the later of (i) the date You have physically vacated (including removal of all of Your personal property from) Your Residence, and (ii) the date a new resident enters into a Residency Agreement with Us and pays Us the then current Entrance Fee for the Residence You have vacated;

c. You will continue to pay the Monthly Service Fee (and the Second Person Monthly Service Fee if applicable) relative to Your vacated Residence (in addition to all other Fees described above) until the date You have physically vacated (including removal of all of Your personal property from) Your Residence.

H. REASSIGNMENT OF A RESIDENCE

1. We may reassign Your Residence to a different resident upon the occurrence of any of the following:

a. Your failure to establish Residency within sixty days of Our notice to You that the Residence is ready and available for occupancy, unless We agree otherwise in writing.

b. The permanent vacancy of Your Residence by every Resident having a present right to reside there. A permanent vacancy is considered to exist if:

i. This Agreement is rescinded, or Your Residency is otherwise terminated, and Your Residence is vacated (including removal of all of Your personal property) by every Resident having a present right to reside there: or

ii. You (or the last remaining Joint Resident in the case of a Joint Residency) are admitted permanently to the Assisted Living Center, Special Care Center, Health Care Center or an Outside Facility.

2. Except as otherwise provided in this Agreement, if You use the Assisted Living Center, Special Care Center, Health Care Center or an Outside Facility on a temporary basis, You will retain possession, rights and privileges for use of Your Residence during that period.

3. There are limitations to the type of nursing care that We are able to provide. For example, if You have a dangerously contagious disease, an uncontrolled or untreated mental condition or specialized psychiatric condition, or if You require nursing care services beyond Our routine nursing services or any condition requiring services which are prohibited under Our licenses with the Department of Health or the Department of Social Services, then We will assist You in transferring to an appropriate hospital, institution or other facility.

I. DISPOSITION OF PERSONAL PROPERTY

In the event of termination or rescission of this Agreement or Your permanent transfer from Your Residence, all of Your personal property must be removed from Your Residence within fifteen days thereof. If after that fifteen day period such property is not removed, We will have the right to remove the property from Your Residence and to charge You for the actual cost of storing, insuring, transporting

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and preserving the property, such costs not to be less than fifty dollars ($50.00) per month. We will have a lien on such property to the extent of such costs and the costs of recovering same.

J. FINANCIAL OBLIGATIONS AND SUBSIDIES

Your timely payment of all fees and other charges under this Agreement is a condition of Your Residency, and failure to pay any such fees and charges will constitute “Good Cause” for termination of Your Residency. However, We may grant You a subsidy to assist You in the payment of a portion of such fees or charges in the event We determine, in Our sole and absolute discretion, that such subsidy is appropriate. Any such subsidy will be made in accordance with Our policies and procedures then in effect, which may be changed from time to time. In no event will any such subsidy be given to any resident who impairs his or her ability to meet financial obligations, whether by gratuitous transfer (to Your spouse or to any other person or entity) or incurrence of unusual, unnecessary or extraordinary expenditures or obligations, as determined by Us in Our sole and absolute discretion. No subsidy will be granted to a remaining Joint Resident when the first Joint Resident to withdraw or dies fails to provide for the remaining Joint Resident as required in Section W, Joint and Several Liability of Joint Residents, below. You agree to provide Us with such financial and other information and documentation as We may request, from time to time, in Our sole and absolute discretion, to determine Your eligibility for such subsidy in accordance with the foregoing. In the event any such subsidy is granted to You, You agree as follows:

1. You will remain obligated to reimburse Us for the full amount of such subsidy, which will remain Your obligation upon termination of this Agreement and may be satisfied from or offset against any refund or other sums We may owe to You. To the extent such obligation is not satisfied as of the time of Your death, You hereby agree that it will be an obligation of Your estate.

2. You agree to accept such level of accommodations as We deem necessary, in Our sole and absolute discretion, so as not to impair our ability to meet Our financial obligations and otherwise to operate Pinnacle Living and/or Cedarfield on a sound financial basis, in Our sole and absolute discretion. You agree that such accommodations may be a smaller or otherwise different from Your Residence if We deem it necessary or appropriate.

3. You acknowledge that We are under no obligation to make or to continue any such subsidy, and that We may discontinue any such subsidy at any time in Our sole and absolute discretion.

In consideration of Our acceptance of You for Residency under this Agreement, You hereby agree not to take any action, or to omit to take any action, so as to impair Your ability to meet Your financial obligations under this Agreement, whether by gratuitous transfer to any person or entity or to incur any unusual, unnecessary or extraordinary expenditures or obligations. Any such act or omission by You (or in Your behalf by Your personal representative, agent or other authorized person) shall be deemed a “material breach” of this Agreement by You constituting “Good Cause” for Us to terminate this Agreement as contemplated under Section F.2(f) hereof.

K. NATURE OF PAYMENTS

You and We acknowledge that the payments made by You to Us under this Agreement are intended solely as compensation to Us for providing You with residency and services, and that such payments are not intended to be a loan. However, We have not provided, nor shall We provide, any advice to You in this regard, and We urge You to seek advice and counsel from Your own legal and tax advisors regarding these matters and any income or other tax implications relating to such payments or otherwise relating to this Agreement.

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L. PERSONAL REPRESENTATIVE FOR INCAPACITY

We strongly encourage You to make arrangements before You move into Your Residence whereby Your affairs will be managed by attorneys-in-fact or other agents with legal authority to handle your personal, health, legal and business matters (collectively Your “personal representatives”) if You become incapacitated. You agree to have a financial power of attorney in place at all times while a resident of the Community. You agree to provide Us with the name, address and telephone number of each of Your personal representatives before You move into Your Residence, and to inform Us of any change in the identity of Your personal representatives. You also agree that either You or Your personal representatives will inform Us when Your personal representatives assume responsibility for managing Your personal, health, legal or business affairs. You agree to reimburse Us for all expenses which We may incur as the result of Your having failed to make or to keep such arrangements in place.

M. RIGHT OF ENTRY

You hereby grant Us and Our authorized team members and agents the right of entry into Your Residence at all reasonable times (after making arrangements with You if reasonably practicable) for inspection, maintenance and housekeeping or storage purposes, and at any time for emergencies.

N. LOSS OR DAMAGE TO PROPERTY OR PERSON

1. We will not be responsible for the loss or damage of any of Your personal property due to routine maintenance, housekeeping activities, theft, fire, other casualty or any other cause. Our insurance policy(ies) shall not protect You against loss or damage to Your personal property. You may desire to obtain such policy(ies) of insurance as may be appropriate to provide against theft, fire or other casualty to Your personal property.

2. You agree that neither We nor Our agents or team members will be liable for death or injury not caused by Our active negligence.

3. You agree to indemnify and hold Us and Our agents and team members harmless from and against any and all claims, demands, actions and causes of action (including any costs and attorney’s fees), whether from injury to person, loss of life or damage to property, occurring in or about Your Residence or involving You anywhere else in the Community, but only to the extent actually caused by Your negligence.

O. ENTIRE AGREEMENT AND MODIFICATION

This Agreement, including the Application for Residency (including, without limitation, the health, financial and other related documentation You provide Us), comprise the entire Agreement between You and Us. You agree that You are not relying upon any oral statements or representations made by Us which are not also set forth in this written Agreement. No amendment or special provision of this Agreement will be valid or enforceable unless set forth in a written document executed by all Residents who are parties hereto and on behalf of Pinnacle Living by Our President. We reserve the right to modify the Agreement unilaterally in order to conform to changes in the law or applicable regulations and to modify unilaterally Our rules, regulations, policies and procedures.

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P. SEVERABILITY

Except as otherwise specifically provided in this Agreement, the invalidity or amendment of any restriction, condition or other provision of this Agreement, or of any part thereof, will not impair or affect in any way the validity, enforceability or effect of the rest of this Agreement.

Q. GOVERNING LAW AND COSTS OF ENFORCEMENT

This Agreement is made in Virginia, and it shall be governed and construed, in all respects, in accordance with the laws of the Commonwealth of Virginia. In the event of a dispute concerning the performance of this Agreement, the substantially prevailing party will be allowed to collect from the other party its court costs and reasonable attorney fees in such dispute.

R. INSURANCE

1. You agree to maintain health insurance coverage under Parts A and B of the Medicare Program; provided that, if You are not eligible for such coverage, You agree to obtain equivalent coverage in such amounts and from such carrier(s) as may be reasonably acceptable to Us.

2. We are not permitted to serve persons who are recipients of Medicaid, nor are recipients of Medicaid eligible for placement in the Health Care Center.

S. NON-WAIVER OF BREACH

If in one or more instances We fail to insist that You perform any of Your obligations under this Agreement, such failure shall not be construed as a waiver of any past, present or future rights We have under this Agreement; Your obligations shall nevertheless continue in full force and effect.

T. NO OWNERSHIP INTEREST

The rights and privileges granted to You by this Agreement do not include any leasehold rights or interests nor include any right, title or interest in any part of the personal property, land, buildings or improvements owned or administered by Us. Your rights are primarily for services, with a contractual right of Residency. Any rights, privileges or benefits under this Agreement or any interest or contractual rights of any nature in Pinnacle Living and/or Cedarfield, including the right to any refund of the Entrance Fee, Your Refund or other benefit or payment hereunder, are and shall be subordinate in priority, right, claim and interest to any lien, charge, mortgage or other security interest or agreement now or hereafter placed on or affecting Pinnacle Living and/or Cedarfield or any of Pinnacle Living’s and/or Cedarfield’s real or personal property, and to any amendment, modification, replacement or refunding thereof.

U. ASSIGNABILITY

You may not assign Your rights or obligations hereunder, in whole or in part, nor may You subcontract Your right to reside in Your Residence, under any circumstances. We shall have the right to assign Our rights and obligations hereunder in whole or in part to any successor owner or lender, either outright or as security for any indebtedness of Pinnacle Living and/or Cedarfield, without Your consent. The transfer of ownership of Pinnacle Living and/or Cedarfield, or any part thereof, shall not be deemed a termination of this Agreement.

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V. JOINT AND SEVERAL LIABILITY OF JOINT RESIDENTS

If this is a Joint Residency Agreement, each Joint Resident hereby agrees (i) to be bound jointly and severally by the terms and conditions hereof, (ii) to make provision in his or her respective estate planning documents (whether by will, trust, survivorship, pay-on-death, beneficiary designation or other designation) to satisfy the continuing obligations of the remaining Joint Resident under this Agreement after the death of the first Joint Resident to die, and (iii) that such obligations shall become and remain an obligation of his or her estate until satisfied. You hereby agree to provide us from time to time, upon Our request, with written evidence satisfactory to Us of Your compliance with Your obligations under this Paragraph. In the event that one Joint Resident no longer resides in the Community, each of You, as Joint Residents, shall remain jointly liable for the full performance of this Agreement (including but not limited to payment for expenses of the remaining Joint Resident) even in the event of death, divorce, legal or actual separation. Any contrary provision of this Agreement notwithstanding, should one of You, as a Joint Resident, die or withdraw without making provisions for the remaining Joint Resident sufficient to permit the remaining Joint Resident to independently financially qualify as a Resident after the death or withdrawal of one of You, then, in addition to being in breach of this Agreement affecting both Joint Residents, You agree that the remaining Joint Resident shall have a claim against Your estate and against any person to whom You made a transfer to in violation of the duty to support Your Joint Resident under this Agreement. You acknowledge that We would not enter into this Agreement but for the assurances of both Joint Residents that each would provide for the remaining Joint Resident, and You acknowledge that one Joint Resident’s failure to do so for the other shall be deemed a “material breach” of this Agreement by You constituting “Good Cause” for Us to terminate this Agreement as contemplated under Section F.2 hereof and otherwise excusing Our further performance of this Agreement. This section shall survive the termination of this Agreement.

WITNESS THE SIGNATURES of the parties.

RESIDENT(S):

_____________________ ___________________________________________ Date Signature

_____________________ ___________________________________________ Date Signature (Joint Resident – if applicable)

PINNACLE LIVING

Date: By:___________________________________________ Title:_________________________________________

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SCHEDULE A CEDARFIELD RESIDENCY AGREEMENT

AMENITIES AND SERVICES* Some Services May Be Available at an Additional Fee

Summary of Amenities

• club room and private dining venue; • communication channel/monthly newsletter; • library/business center; • pharmacy/gift shop/convenience store; • access to meeting space/activity rooms; • salon services; • wellness center with pool and fitness room; • Atrium Café, Cedarfield dining room and take out; • tennis court; • building access system; • resident garden areas; • health clinic with on-site physician services; • rehabilitation therapy; • gated community with 24 hour security; • housekeeping and maintenance services; • lawn care; • priority access to Health Services (Assisted Living, Special Care and Health Care); • Helping Hands Program; • transportation; • planned activities and outings; • catering services; • club house; • woodworking shop; • massage therapy; • personal laundry services; • concierge services; • guest suites; • dietician services; • dry cleaning pick up; • art gallery; • billiards; • bank and automated teller machine.

* NOTE: The amenities, services and fees described in this Schedule A may be modified from time to time or eliminated, as may be deemed appropriate; provided, however, that residents will be given at least 30 days advance notice of any such changes.

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Schedule A (Continued)

INDEPENDENT LIVING

Services Included in Monthly Service Fee (Subject to change with 30 days notice)

Summary of Services

• Dining Dollars Plan**, per resident, per month determined by Us; • light housekeeping**, to include mopping of kitchens & bathrooms, light dusting, vacuuming, wiping of

exposed kitchen surfaces and general cleaning of bathroom areas including sinks, tubs, showers, toilets and mirrors;

• nursing on call 24 hours per day for emergencies; • water and sewer; • gas and electric services, apartments and cottages; • access to WiFi; • trash disposal; • pest control services; • maintenance of common spaces, grounds and lawn care; • maintenance of Residences including repair of appliances provided by Us; • two hours of personal maintenance service within the first two weeks following move-in for picture

hanging and furniture arrangement. Supplies not included. Hours not used are not carried over for future use;

• 24-hour security; • emergency call system monitoring, 24 hrs a day; • regularly scheduled social, cultural, educational, wellness and recreational programs; • access to Wellness and Fitness Center, pool and tennis; • on-site shuttle transportation to evening meals and special events; • shuttle transportation to regularly scheduled shopping trips and routinely scheduled events; • on-site storage bins (Apartment residents only); • access to woodworking shop and garden area; • access to library, resident business center and spiritual programs; • use of common areas (some require scheduling); • preventative health services at Cedarfield Clinic), to include minor first aid, regular blood pressure

checks, temperature and pulse checks, maintenance of health records; • priority access to Assisted Living, Special Care and Health Services, including Respite Care, per contract.

** Dining Dollars Plan: Bundled $250 per month per person Unbundled $100 per month per person ** Light Housekeeping: Bundled-weekly

Unbundled-monthly

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INDEPENDENT LIVING

Additional Services Available At An Additional Cost

• meals in excess of the Dining Dollars plan; • additional housekeeping (beyond light housekeeping** service) at an hourly rate; • on site physician services (physician must have a service agreement with Pinnacle Living; fee for services made

directly between resident and physician); • alternative therapies, such as massage (prevailing vendor rates); • salon services (prevailing vendor rates); • basic cable TV (billed monthly at community rate); • premium cable TV service (prevailing vendor rates); • high speed internet (prevailing vendor rates); • catered meal functions (varies with menu choices and location); • guest suites (based on availability); • personal laundry services (wash, dry, and fold); • rehabilitation services based on prevailing rates; • dentist and podiatry services; • repair of personal appliances, lamps, etc. (fee based per hour plus parts); • special programs, concert tickets, catered trips; • bus transportation to scheduled events; • telephone (prevailing vendor rates); • on-site pharmacy; • long term care insurance review & filing, at prevailing community rate; • concierge services; • dietary consultation; • room set up fee (varies by location); • medical supplies and additional services received in Clinic as per resident handbook; • dry cleaning pick up; • medical transportation; • personal transportation; • Helping Hands (Cedarfield’s hourly home care services); • covered parking; • weekly flat linen service; • supplies and materials for activities if required.

** Light Housekeeping: Bundled-weekly Unbundled-monthly

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ASSISTED LIVING AND SPECIAL CARE


• three meals per day, plus snacks and beverages; • dietary consultation; • daily housekeeping to include flat linen service; • nursing assistance and monitoring 24 hours per day; • medication administration; • water, sewer, electric, heating and cooling; • access to WiFi; • trash disposal; • pest control services; • maintenance of apartment and grounds; • one hour of personal maintenance service within the first week following move-in for picture hanging and

furniture arrangement. Supplies not included. Hours not used are not carried over for future use; • special diets, if ordered by physician; • 24-hour security; • emergency call system; • regularly scheduled social, cultural, educational, wellness and recreational programs; • access to Wellness and Fitness Center, pool and tennis; • chapel and chaplain services; • transportation to regularly scheduled shopping trips and routinely scheduled events; • scheduled transportation in accordance with policies; • woodworking shop, garden area and library; • use of common areas (some require scheduling); • use of laundry facilities; • access to Clinic with on-site physicians services; • temporary tray service (up to 3 days); • priority access to Health Services, including Respite Care, per contract.

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ASSISTED LIVING AND SPECIAL CARE


• housekeeping beyond routine service at prevailing community rates; • on site physician services (physician must have a service agreement with Pinnacle Living; fee for services

made directly between resident and physician); • physician on call 24 hours a day; • dentist and podiatrist services; • alternative therapies, such as massage (prevailing vendor rates); • salon services (prevailing vendor rates); • wound care; • medical supplies and dressings; • basic cable TV service (billed monthly at community rate); • premium cable TV service (prevailing vendor rates); • catered meal functions (varies with menu choices and location); • guest suites (based on availability); • concierge services; • personal laundry services (wash, dry, and fold); • rehabilitation services based on prevailing rates; • special programs, concert tickets, catered trips; • telephone (billed monthly at community rate); • high speed internet (prevailing vendor rates); • on-site pharmacy; • long term care insurance review and filing, at prevailing community rate; • medical and personal transportation (prevailing community rates, based on availability); • dry cleaning services; • guest meals.

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HEALTH CARE


• three meals per day, plus snacks and beverages; • dietary consultation; • daily light housekeeping; • linen changes weekly and as needed; • nursing assistance and monitoring 24 hours per day; • medication administration; • water, sewer, electric, heating and cooling; • access to WiFi; • trash disposal; • pest control services; • maintenance of common spaces and grounds; • special diets, if ordered by physician; • 24-hour security; • regularly scheduled social, cultural, educational, wellness and recreational programs; • scheduled transportation in accordance with policies; • access to Wellness and Fitness Center, pool and tennis; • transportation to regularly scheduled shopping trips and planned special events; • woodworking shop, garden center & library; • use of common areas (some require scheduling); • chapel and chaplain services; • use of laundry facilities; • access to Cedarfield Clinic with on-site physicians services; • temporary tray service (up to 3 days); • scheduled transportation in accordance with policies.

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HEALTH CARE


• on site physician services (physician must have a service agreement with Pinnacle Living; fee for services made directly between resident and physician);

• physician on call 24 hours a day; • dentist and podiatrist services; • alternative therapies, such as massage (prevailing vendor rates); • salon services (prevailing vendor rates); • wound care; • medical supplies and dressings; • basic cable TV service (billed monthly at community rate); • premium cable TV service (prevailing vendor rates); • high speed internet (at prevailing vendor rates); • catered meal functions (varies with menu choices and location); • guest suites (based on availability); • concierge services; • personal laundry services (wash, dry, and fold); • rehabilitation services based on prevailing rates; • special programs, concert tickets, catered trips; • telephone (billed monthly at community rate); • personal transportation (prevailing community rates, based on availability); • on-site pharmacy; • long term care insurance review and filing, at prevailing community rate; • guest meals; • dry cleaning services.

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SCHEDULE A CEDARFIELD

HEALTH SERVICES

2018-2019 RATE SCHEDULE

Level of Services Daily Rate

Assisted Living

$243 Level of Service 1 $251 Level of Service 2 $259 Level of Service 3 $267

Special Care Center

$211

Nursing Care (Semi-Private) Nursing Care (Private)

$220 $362

These rates are applicable to Preferred Choice Residency Agreement Residents only, and are subject to change on thirty (30) days advance written notice.

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SCHEDULE A CEDARFIELD

DESCRIPTION OF SERVICES TO RESIDENTS The following is a description of the Services which are presently offered to non-Lifecare Independent Living Residents at Cedarfield. As explained below, this information is subject to change. Except as otherwise stated, the Monthly Service Fee covers the cost of these Services. The Resident Handbook provides additional details concerning all Programs and Services at Cedarfield. Dining Meals will be available in Our dining venues seven days a week. The hours of operation of these venues are published in the Resident Handbook. Residents may use their monthly meal allowance, at their own discretion, to cover the cost of such meals. Meal purchases beyond the monthly meal credit will be charged to the resident’s monthly statement at the published menu prices. Guest meals, carryout meals, “sick meals”, and home delivery service may also be charged against the resident’s monthly meal credit. Reservations are not necessary for lunch and dinner. However, if a Resident invites a guest(s) for a meal, reservations will be required in the Dining Room for all residents and their guests. Reservation policies are stated in the Resident Handbook. Buffet will be provided at a flat rate. Catering and Special Event Services will be available through the Dining Services Department. Residents may not charge these services against their monthly meal credit. Service charges and fees will apply and will be charged to the resident’s monthly statement. Helping Hands provides meals to those residents in need through this program. Limited sick meal delivery service will be available to an ill resident in Independent Living with the approval of the Clinic Nurse Manager. The cost of those meals, plus a delivery fee, will be calculated at the published menu prices and charged to the resident’s account. Exception: Clear Liquid meal will be provided at a flat rate. Housekeeping Residents are expected to maintain their own Residences in a clean, sanitary, safe and orderly condition, and We will provide light housekeeping to assist residents in this regard. The service will include (1) mopping of hard surface floors, (2) vacuuming carpeting, (3) Light dusting, (4) cleaning and sanitizing showers, tubs, lavatories, kitchen sink and all countertops, (5) cleaning the exterior of vanities and kitchen cabinets and (6) cleaning exterior surfaces of kitchen appliances. (Exterior windows and cottage power-washing will be performed as scheduled). For an additional charge, separate housekeeping tasks or more frequent housekeeping schedules are available upon request. Laundry Each Residence is equipped with a washer and dryer. All personal laundry assistance will be provided at an additional fee. Personal laundry service includes but not limited to: washing of bed linens, bathroom linens, bedspread/comforter, table cloths/napkins, all personal clothing (no silk or wool); ironing and folding. Dry cleaning pick-up and drop-off services will be provided on a scheduled basis with local cleaners, subject to availability.

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Utilities Apartments and cottage homes will have water, sewer, electricity, heating, cooling, gas (for fireplaces where applicable) and trash service, the cost of which is covered by the Monthly Service Fee. Each Residence will be wired for cable T.V. Basic service will be billed monthly at the community rate. Each Residence will be wired for in-home computer use. High-speed Internet access may be available directly from Comcast at an additional charge. Each Residence will be wired for one telephone line. Additional telephone lines may be available at an additional fee. Telephone service will be available at an additional charge. Maintenance We will maintain each Residence, including all provided appliances. We will maintain all community common areas. We will maintain all landscaping and grounds. Residents are welcome to plant and maintain their own personal gardens within designated planting areas. Cottage residents may opt to install an irrigation system and maintain all associated costs. Transportation We will provide transportation for local shopping trips as well as to and from programs, activities and events arranged by the Wellness and Leisure Department outside of the community. Additional transportation service outside of regularly scheduled routes may be available at an additional charge. Transportation to and from medical appointments, hospitals and airports may be available at an additional cost and subject to availability. Reservations will be required. Security We will provide reasonable security measures, including a 24-hour resident emergency call system and monitoring of the Cedarfield grounds and facilities by security personnel. Storage Space Residents who occupy an Apartment will be assigned one (1) storage bin, the cost of which is included in the Monthly Service Fee. State and local fire regulations restrict what may be stored, and the manner in which it may be stored, in such storage bins. Guidelines for use of storage space will be provided in a Resident Handbook. The assigned storage bins must be vacated at the time the apartment is vacated.

Guests Two guest accommodations may be provided for visitors on a reserved basis and subject to availability – at an additional posted fee.

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Social-Recreational Activities We will have a program of activities designed to meet the spiritual, physical, social, recreational and intellectual needs of Cedarfield residents. Residents are welcome to participate in these activities, as they may desire. Some events may involve an additional charge. Wellness Program Your Monthly Service Fee covers access to the pool and fitness center and all fitness classes. Fitness assessments and personal training are offered at an additional fee. Wellness lectures and support groups are offered to all members of the community. Health and Wellness Services Your Monthly Service Fee covers access to the Cedarfield Clinic. Residents of Cedarfield may use the services of the clinic. The Clinic Nurse Manager and related team members are available for general health and preventative wellness services. Preventative services may include blood pressure checks, temperature and pulse checks and weight monitoring – all included in the Monthly Service Fee. Most clinic services are included in the Monthly Service Fee; however, certain services are provided for an additional fee which will be charged to the resident’s monthly statement. A list of ancillary services for a fee will be available. Some of those services include but not limited to: Lab Work Drawn/Specimens Collected, Dressing Changes/Wound Care, Medical supplies and dressings associated with the cost and type of treatment ordered by physicians, Injections, Flu and Pneumonia Vaccines, Blood Glucose Testing, Urinalysis, Suture Removal, X-rays, Physician’s Orders, Physician Referral. Helping Hands: This program is designed to help residents remain successful in Independent Living by providing assistance with medication management, meals, grooming and by offering respite opportunities for socialization. Fees for this service will be billed directly to your monthly statement. All billing for services rendered in the clinic by contracted professional services such as a Physician visit, Audiology, Dentist, Massage Therapy, Podiatry, Rehabilitation, Pharmacy, LabCorp and Psychiatry will submit direct billing to Medicare and/or your supplemental insurances. Access to Assisted Living, Special Care and Health Care services as provided in your agreement. We may provide additional services in the future, and We may modify or eliminate existing services from time to time, as We may deem appropriate (i.e., if there is an insufficient level of resident interest or participation); provided, however, that residents will be given at least 30 days advance notice of any such changes.

________________________________________________________________________________________

78 ________________________________________________________________________________________

SCHEDULE B TO RESIDENCY AGREEMENT

CEDARFIELD – ASSIGNMENT OF REFUND

The undersigned Resident (“Resident”) hereby, assigns, grants and conveys unto the Trustee(s) (the “Assignee”) of the Trust described below all right, title and interest in and to any and all refunds Resident is entitled to receive under that certain Residency Agreement (the “Residency Agreement”) between Resident and Pinnacle Living dated , 20 . Resident hereby acknowledges that, with regard to this Assignment:

(1) It shall be Resident’s duty to notify Pinnacle Living in writing regarding any change in the identity of the Trustee(s);

(2) Upon request by Pinnacle Living, Resident (or the Trustee(s)) shall provide written

assurance satisfactory to Pinnacle Living regarding the continuing validity of the Trust and the identity and authority of the Assigned Trustee(s); and

(3) In the event of any confusion regarding the correct identity of the assignee Trustee(s)

or Trust at the time any refund payment is due, Pinnacle Living shall be entitled, in its sole and absolute discretion, to distribute such refund(s) to Resident’s estate without liability to any person or entity.

Resident hereby acknowledges that Pinnacle Living is accepting this Assignment as a convenience to Resident and, on behalf of Resident and Resident’s heirs, distributees, beneficiaries, personal representatives, successors and assigns, Resident hereby releases Pinnacle Living and agrees to indemnify and save Pinnacle Living harmless of and from any and all claims and other liability as may arise in connection with Pinnacle Living’s compliance with the instructions contained herein. Resident acknowledges that all of Pinnacle Living’s rights and remedies hereunder shall devolve To Pinnacle Living’s successors and assigns.

If this is a Joint Residency Agreement, any rescission by one Joint Resident will be deemed a rescission by both Joint Residents; provided that the other Joint Resident may enter into a new Residency Agreement so long as such other Resident then satisfies Our then current admissions criteria independently.

If two persons signed the Residency Agreement as Residents, the Residency Agreement is a Joint Residency Agreement, in which case (i) the term “Resident”, as used herein and in the Residency Agreement shall refer to each Joint Resident individually and to both Joint Residents together, as the context may dictate, and (ii) both Residents agree to be bound jointly and severally by the terms and conditions hereof.

Name of Assignee/Trustee(s): Insert Name(s) of Assignee/Trustee(s) Name of Trust: Insert Name of Trust Effective Date of Trust: Insert Effective Date of Trust

________________________________________________________________________________________

79 ________________________________________________________________________________________

WITNESS the signatures of the parties. RESIDENT(S):

____________________ __________________________________________ Date: Signature ____________________ __________________________________________ Date: Signature (Joint Resident – if applicable) ASSIGNEE/TRUSTEE(S):

_______________________ ____________________________________________ Date: Trustee’s Signature

_______________________ ____________________________________________ Date: Co-Trustee’s Signature (if applicable)

PINNACLE LIVING ___________________

Date: By:___________________________________________ Title:_________________________________________

________________________________________________________________________________________

80 ________________________________________________________________________________________

________________________________________________________________________________________

81 ________________________________________________________________________________________

CERTIFICATE OF ENTRANCE

September 2018

________________________________________________________________________________________

82 ________________________________________________________________________________________

________________________________________________________________________________________

83 ________________________________________________________________________________________

PINNACLE LIVING

CERTIFICATE OF ENTRANCE

This Certificate of Entrance, executed by _________________________ (the “Resident”) and Pinnacle

Living (“Pinnacle Living”) this ______ day of ________, 20____ evidences that the Resident entered the

Pinnacle Living community known as _________________________on the date hereof pursuant to that

certain Residency Agreement made and entered into between the Resident and Pinnacle Living (the

“parties”).

The parties acknowledge and agree that this date shall be considered the date of Resident’s entrance to the

community for all purposes contemplated in the Residency Agreement.

WITNESS the following signatures:

___________________________________ ____________________________________ Resident’s Signature Joint Resident’s Signature ___________________________________ ____________________________________ Print Resident’s Name Print Joint Resident’s Name Pinnacle Living By: _______________________________________ Name _______________________________________ Title

________________________________________________________________________________________

84 ________________________________________________________________________________________

________________________________________________________________________________________

85 ________________________________________________________________________________________

Surety Agreement

September 2018

________________________________________________________________________________________

86 ________________________________________________________________________________________

________________________________________________________________________________________

87 ________________________________________________________________________________________

PINNACLE LIVING

SURETY AGREEMENT’

____________________________________ ___________________________________ Name of Resident Community

In consideration of Pinnacle Living (“Pinnacle Living”) agreeing to accept the Resident named above (the “Resident”) as a resident of the Community in accordance with the terms and conditions set forth in the attached Residency Agreement (the “Residency Agreement”), I, the undersigned, do hereby enter myself as surety of the Resident’s obligations under the Residency Agreement, and unconditionally promise and agree to pay to Pinnacle Living all fees, costs and expenses required to be paid to Pinnacle Living in accordance with the Residency Agreement. I hereby acknowledge that I have received a copy of the Residency Agreement, that I have read it and understand all of its terms and conditions, that I have been advised to review it with my own legal advisor and have been given sufficient opportunity to do so, and that I hereby expressly consent and agree to all the terms, conditions and provisions thereof.

I hereby warrant and represent that I have personal assets to support the Resident’s financial obligations under the Residency Agreement. I hereby agree to provide Pinnacle Living with updated personal financial statements from time to time upon Pinnacle Living’s request, in such form and content as Pinnacle Living may request, and I hereby agree to inform Pinnacle Living in the event of any material change in my financial situation without waiting for Pinnacle Living to request such information. I hereby acknowledge that my promises made herein, and the information contained in the statements I have provided and will provide to Pinnacle Living, have substantially induced Pinnacle Living to accept the Resident for residency at the Community, and that any material misstatements made therein, or in any other statement or other information I provide to Pinnacle Living, shall constitute good cause for Pinnacle Living to terminate the Residency Agreement, in addition to any other remedies available to Pinnacle Living hereunder or otherwise at law or in equity.

I hereby acknowledge and agree that my obligations as surety of the Residency Agreement shall extend to any and all extensions, modifications and amendments to the Residency Agreement, whether or not I am given actual notice thereof.

This is a surety of payment and not collection, and Pinnacle Living shall be permitted to bring any suit, action or proceeding against me for the enforcement of any provisions under this surety without exhausting other remedies Pinnacle Living may have against the Resident, without bringing any action against the Resident or any other party, and without resort to any security. In the event other persons execute a surety agreement(s) for the benefit of the Resident, Pinnacle Living may exercise its rights against multiple sureties separately, or against any one or more sureties, at its sole option, and I agree that my liability is both joint and several.

No lawful act of commission or omission by Pinnacle Living or any delay by Pinnacle Living in exercising its rights hereunder or under the Residency Agreement (or any amended or revised version thereof) shall in any way or at any time affect, impair or waive the rights of Pinnacle Living to enforce any right, power or benefit arising under this surety.

I hereby expressly agree that notice to the Resident shall be deemed sufficient notice to me for all purposes, and I hereby bind my executors, administrators, heirs and assigns to all matters agreed to herein.

________________________________________________________________________________________

88 ________________________________________________________________________________________

If any provision of this surety or the application thereof in any circumstance is held to be unenforceable, the remainder of this surety shall not be affected thereby, and shall remain in full force and effect.

This surety shall be governed in all respects under the laws of the Commonwealth of Virginia. I hereby agree to pay all costs and expenses, including reasonable attorney fees, incurred by Pinnacle Living in connection with the enforcement of its rights under this surety including, without limitation, such costs and expenses incurred in the collection of fees payable by the Resident.

WITNESS my signature as of this __________day of __________________, 20______.

___________________________________________________ Surety’s Signature

COMMONWEALTH OF VIRGINIA COUNTY/CITY OF ______________________, to-wit:

The foregoing instrument was acknowledged before me this date,___________________________,

20_____, by _________________________________________.

___________________________________________________ Notary Public

My commission expires:

Combined Financial Report May 31, 2018

Exhibit A

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MISSION STATEMENT Enriching Life’s Journey

Table of Contents

INDEPENDENT AUDITOR’S REPORT ............................................................................................................................... 1

COMBINED BALANCE SHEETS ........................................................................................................................................ 2

COMBINED STATEMENT OF ACTIVITIES (2018) ............................................................................................................. 3

COMBINED STATEMENT OF ACTIVITIES (2017) ............................................................................................................. 4

COMBINED STATEMENTS OF CASH FLOWS ................................................................................................................... 6

NOTES TO COMBINED FINANCIAL STATEMENTS ........................................................................................................... 8

1. Nature of Operations and Summary of Significant Accounting Policies ...................................................... 8

2. Restrictions on Net Assets ......................................................................................................................... 15

3. Investments ............................................................................................................................................... 16

4. Fair Value ................................................................................................................................................... 18

5. Assets Whose Use is Limited ..................................................................................................................... 25

6. Property and Equipment ........................................................................................................................... 26

7. Bonds and Notes Payable .......................................................................................................................... 27

8. Employee Retirement Plan ........................................................................................................................ 37

9. Concentrations of Credit Risk .................................................................................................................... 37

10. Commitments and Contingencies .............................................................................................................. 37

11. Related Party Transactions ........................................................................................................................ 38

12. Fair Value of Financial Instruments ........................................................................................................... 38

13. Endowment (Samaritan) Program ............................................................................................................. 39

14. Functional Expenses .................................................................................................................................. 43

15. Subsequent Events .................................................................................................................................... 47

INDEPENDENT AUDITOR’S REPORT ON THE SUPPLEMENTARY INFORMATION .......................................................... 48

COMBINING BALANCE SHEET (2018) ...................................................................................................................... 49

COMBINING BALANCE SHEET (2017) ...................................................................................................................... 51

COMBINING STATEMENT OF ACTIVITIES (2018) ..................................................................................................... 53

COMBINING STATEMENT OF ACTIVITIES (2017) ..................................................................................................... 55

COMBINING STATEMENT OF CASH FLOWS (2018) ................................................................................................. 57

COMBINING STATEMENT OF CASH FLOWS (2017) ................................................................................................. 59

SUPPLEMENTAL INFORMATION AND OTHER REQUIRED DISCLOSURES ..................................................................... 62

COMBINING BALANCE SHEET BY COMMUNITY (2018) ........................................................................................... 63

COMBINING BALANCE SHEET BY COMMUNITY (2017) ........................................................................................... 67

COMBINING STATEMENT OF ACTIVITIES BY COMMUNITY (2018) .......................................................................... 71

COMBINING STATEMENT OF ACTIVITIES BY COMMUNITY (2017) .......................................................................... 75

SUMMARY OF FINANCIAL INFORMATION ............................................................................................................... 79

1

INDEPENDENT AUDITORS’ REPORT

INDEPENDENT AUDITOR’S REPORT Board of Directors Pinnacle Living Richmond, Virginia Report on the Financial Statements We have audited the accompanying combined financial statements of Pinnacle Living, WindsorMeade, and Hermitage Capital and Reserve Corporation, which comprise the combined balance sheets as of May 31, 2018 and 2017, the related combined statements of activities and cash flows for the years then ended, and the related notes to the combined financial statements (collectively, the financial statements). Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these 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 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 audit to obtain reasonable assurance about whether the financial statements are free from 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 financial position of Pinnacle Living, WindsorMeade, and Hermitage Capital and Reserve Corporation as of May 31, 2018 and 2017, and the changes in their net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Mitchell Wiggins Richmond, Virginia September 7, 2018

2

PINNACLE LIVING COMBINED BALANCE SHEETS MAY 31, 2018 AND 2017

ASSETS 2018 2017 Current Assets Cash and cash equivalents $ 15,760,602 $ 16,976,143 Cash and cash equivalents, temporarily restricted 311,697 308,919 Total cash and cash equivalents 16,072,299 17,285,062 Accounts receivable, residents, less allowance for uncollectible accounts 2018 $3,886,778; 2017 $3,797,282

498,269

653,774

Other receivables 523,376 1,360,295 Prepaid expenses 268,460 354,786 Accrued income receivable 163,582 162,746 Assets whose use is limited 4,628,214 4,511,136 Total current assets 22,154,200 24,327,799 Beneficial interest in trusts, permanently restricted 18,257,029 22,636,423 Investments, unrestricted 54,439,537 51,452,590 Investments, temporarily restricted -- 69,486 Investments, permanently restricted 2,973,938 2,973,938 Assets whose use is limited 45,921,436 6,597,146 Other assets 165,913 194,949 Property and equipment, net 186,893,726 173,800,343 Total assets $ 330,805,779 $ 282,052,674 LIABILITIES AND NET ASSETS Liabilities Current Liabilities Accounts payable $ 5,840,733 $ 3,022,647 Accrued expenses 7,723,614 5,306,152 Resident refunds payable 16,038 23,415 Deposits, prospective residents 512,011 1,013,270 Bonds payable 2,055,000 1,910,160 Other current liabilities 386,821 -- Total current liabilities 16,534,217 11,275,644 Resident refunds payable 4,239,071 5,250,403 Deposits, prospective residents 1,880,431 657,180 Notes payable 232,957 55,600 Bonds payable, net of 2018 OID $7,880,701 and bond issuance costs $1,694,199; 2017 OID $10,716,982 and bond issuance costs $1,099,134

105,580,531

61,056,319

Refundable fees 58,027,097 58,921,832 Deferred revenue, entrance fees 87,437,396 80,615,979 Other liabilities 45,624 235,053 Total liabilities 273,977,324 218,068,010 Net Assets Unrestricted Operations 35,285,791 37,946,568 Board designated -- 49,330 Temporarily restricted 311,697 378,405 Permanently restricted 21,230,967 25,610,361 Total net assets 56,828,455 63,984,664 Total liabilities and net assets $ 330,805,779 $ 282,052,674

See Notes to Combined Financial Statements

3

PINNACLE LIVING COMBINED STATEMENT OF ACTIVITIES YEAR ENDED MAY 31, 2018

Unrestricted Temporarily

Restricted Permanently

Restricted

Total Operating Revenues and Support Residents’ fees $ 62,559,928 $ -- $ -- $ 62,559,928 Benevolent care (779,262) -- -- (779,262) Amortization of deferred revenue from entrance fees 11,078,257 -- -- 11,078,257 Ancillary service revenue, net 295,892 -- -- 295,892 Other operating revenue 1,518,645 -- -- 1,518,645 Net assets released from restrictions 306,065 (306,065) -- -- Total operating revenues and support 74,979,525 (306,065) -- 74,673,460 Operating Expenses Administration 10,571,367 -- -- 10,571,367 Marketing 3,241,268 -- -- 3,241,268 General overhead 1,920,447 -- -- 1,920,447 Depreciation 9,828,357 -- -- 9,828,357 Dining 13,526,439 -- -- 13,526,439 Resident services 3,741,446 -- -- 3,741,446 Designated funds 245,456 -- -- 245,456 Building and grounds 12,429,493 -- -- 12,429,493 Housekeeping 4,053,977 -- -- 4,053,977 Nursing 13,135,347 -- -- 13,135,347 Households / Neighborhoods 6,119,002 -- -- 6,119,002 Total operating expenses 78,812,599 -- -- 78,812,599 Change in net assets from operations (3,833,074) (306,065) -- (4,139,139) Other Non-operating Changes Bequests 1,761,261 -- -- 1,761,261 Trusts and legacies 801,735 -- -- 801,735 Present value change in trusts -- -- (4,379,394) (4,379,394) Contributions, Samaritan Program -- 237,853 -- 237,853 Contributions, designated funds 235,696 2,377 -- 238,073 Contributions, other 10,500 -- -- 10,500 Investment income 1,196,355 4,431 -- 1,200,786 Net realized gains (losses) on investments 1,210,209 (2,070) -- 1,208,139 Net unrealized gains (losses) on investments 302,862 (3,234) -- 299,628 Loss on disposal of property and equipment (96,720) -- -- (96,720) Interest expense (4,155,459) -- -- (4,155,459) Other non-operating charges and fees (143,472) -- -- (143,472) Total non-operating changes 1,122,967 239,357 (4,379,394) (3,017,070) Change in net assets (2,710,107) (66,708) (4,379,394) (7,156,209) Net assets at the beginning of the year 37,995,898 378,405 25,610,361 63,984,664 Net assets at the end of the year $ 35,285,791 $ 311,697 $ 21,230,967 $ 56,828,455


4

PINNACLE LIVING COMBINED STATEMENT OF ACTIVITIES YEAR ENDED MAY 31, 2017

Unrestricted Temporarily

Restricted Permanently

Restricted

Total Operating Revenues and Support Residents’ fees $ 61,357,781 $ -- $ -- $ 61,357,781 Benevolent care (1,036,610) -- -- (1,036,610) Amortization of deferred revenue from entrance fees 12,121,637 -- -- 12,121,637 Ancillary service revenue, net 316,914 -- -- 316,914 Other operating revenue 1,242,749 -- -- 1,242,749 Net assets released from restrictions 938,489 (938,489) -- -- Total operating revenues and support 74,940,960 (938,489) -- 74,002,471 Operating Expenses Administration 9,596,079 -- -- 9,596,079 Marketing 2,737,434 -- -- 2,737,434 General overhead 1,999,931 -- -- 1,999,931 Depreciation 9,602,314 -- -- 9,602,314 Dining 13,316,572 -- -- 13,316,572 Resident services 3,646,470 -- -- 3,646,470 Designated funds 157,895 -- -- 157,895 Building and grounds 10,942,103 -- -- 10,942,103 Housekeeping 4,064,820 -- -- 4,064,820 Nursing 16,167,721 -- -- 16,167,721 Households / Neighborhoods 568,075 -- -- 568,075 Total operating expenses 72,799,414 -- -- 72,799,414 Change in net assets from operations 2,141,546 (938,489) -- 1,203,057 Other Non-operating Changes Bequests 158,397 -- -- 158,397 Trusts and legacies 829,665 -- -- 829,665 Present value change in trusts -- -- 3,105,216 3,105,216 Contributions, Samaritan Program -- 260,597 -- 260,597 Contributions, designated funds 157,895 59,309 -- 217,204 Contributions, other 11,146 -- -- 11,146 Investment income 1,141,075 53,912 -- 1,194,987 Net realized gains (losses) on investments 554,355 (8,429) -- 545,926 Net unrealized gains (losses) on investments 1,474,008 (28,236) -- 1,445,772 Loss on disposal of property and equipment (2,043) -- -- (2,043) Interest expense (3,791,254) -- -- (3,791,254) Other non-operating charges and fees (137,076) -- -- (137,076) Total non-operating changes 396,168 337,153 3,105,216 3,838,537 Change in net assets 2,537,714 (601,336) 3,105,216 5,041,594 Net assets at the beginning of the year 35,458,184 979,741 22,505,145 58,943,070 Net assets at the end of the year $ 37,995,898 $ 378,405 $ 25,610,361 $ 63,984,664


5


6

PINNACLE LIVING COMBINED STATEMENTS OF CASH FLOWS YEARS ENDED MAY 31, 2018 AND 2017

2018 2017 Operating Activities Change in net assets $ (7,156,209) $ 5,041,594 Adjustments to reconcile change in net assets to net cash provided by operating activities

Depreciation 9,828,357 9,602,314 Amortization of bond issuance costs 433,966 171,770 Amortization of deferred revenue from entrance fees (11,078,257) (12,121,637) Amortization of original issue discount on bonds payable 388,798 393,933 Realized gains on investments (1,208,139) (545,926) Unrealized gains on investments (299,628) (1,445,772) Loss on sale or disposal of property and equipment 96,720 2,043 Proceeds of first generation entrance fees -- 452,905 Proceeds after first generation entrance fees 22,531,490 15,772,843 Refunds of entrance fees (5,474,258) (4,580,606) Changes in operating assets Accounts receivable, residents 155,505 (291,570) Other receivables 69 (436,735) Prepaid expenses 86,326 (140,180) Beneficial interest in trusts 4,379,394 (3,105,216) Other assets 29,036 (6,101) Changes in operating liabilities Accounts payable 2,867,414 180,300 Accrued expenses 2,417,462 54,357 Resident refunds payable (234,152) (854,957) Deposits, prospective residents 721,992 161,759 Other liabilities 148,062 6,643 Net cash provided by operating activities 18,633,948 8,311,761 Investing Activities Proceeds from sales of investment securities 18,191,569 12,071,037 Purchase of investments (61,158,879) (14,775,480) Withdrawal from investments 2,235,415 2,002,334 Proceeds from the sale of property and equipment 468,668 -- Purchase of property and equipment, Cedarfield and WindsorMeade expansions (15,604,384) (5,680,903) Purchase of property and equipment, capitalized interest (934,896) -- Purchase of property and equipment (6,947,848) (6,856,506) Net cash used in investing activities (63,750,355) (13,239,518) Financing Activities Issuance costs on debt (1,029,031) (503,513) Original issue premium 3,075,180 -- Principal payments on 2012 senior bonds (1,815,000) (1,775,000) Principal payments on bank taxable note -- (16,980,903) Principal payments on 2017A and 2017B bonds (15,111,491) -- Principal payments on 2013A senior bonds (95,160) -- Principal payments on 2013C senior bonds (120,000) -- Issuance of debt on bank note 177,357 19,505,677 Issuance of debt on 2017A and 2017B senior bonds 4,111,789 -- Issuance of debt on 2017C senior bonds 54,710,000 -- Net cash provided by financing activities 43,903,644 246,261 Net change in cash and cash equivalents (1,212,763) (4,681,496) Cash and cash equivalents, beginning 17,285,062 21,966,558 Cash and cash equivalents, ending $ 16,072,299 $ 17,285,062

Supplemental disclosure of cash flow information, cash payments for interest, net of amounts capitalized

$

2,656,266

$

3,232,286


7


8

NOTES TO COMBINED FINANCIAL STATEMENTS

1. Nature of Operations and Summary of Significant Accounting Policies

Nature of operations

Pinnacle Living is a non-stock, § 501(c)(3) (tax-exempt) entity organized under the laws of the Commonwealth of Virginia for the purpose of providing quality care for the elderly in the Commonwealth of Virginia. Pinnacle Living currently operates six life plan communities (including WindsorMeade, described in more detail below), one adult care residence, and one § 509(a)(3) entity (HCRC, described in more detail below) throughout the Commonwealth of Virginia. Of Pinnacle Living’s six life plan communities, four accept term lease contracts, and two accept entrance fee contracts. Specifically, the communities that make up Pinnacle Living are as follows: Hermitage Northern Virginia; located in Alexandria, Virginia

• A Pinnacle Living term contract life plan community. • As of 5/31/2018, Hermitage Northern Virginia has 104 available independent living/assisted

living residences and 42 health center beds. • Target retirement age is 80+ for all levels of care. • Principal markets in Virginia are the counties of Fairfax and Arlington, and the cities of

Alexandria, Falls Church, Annandale, Springfield, Burke, Kingstowne, Vienna, Mclean, and Lorton. The District of Columbia is also a principal market.

• Revenue is primarily derived from resident fees. Hermitage Richmond; located in Richmond, VA

• A Pinnacle Living term contract life plan community. • As of 5/31/2018, Hermitage Richmond has 103 available independent living/assisted living

residences, 15 assisted living style memory support residences, 57 health center beds, and 10 health care style memory support beds.

• Target retirement age is 84+ for all levels of care. • Principal market is Richmond City, Near West End of Henrico County, and parts of

Mechanicsville in Hanover County, Virginia. • Revenue is primarily derived from resident fees.

Hermitage Eastern Shore; located in Onancock, Virginia

• A Pinnacle Living term contract life plan community. • As of 5/31/2018, Hermitage Eastern Shore has 60 available independent living/assisted living

residences and 33 health center beds. • Target retirement age is around 75+ for independent living and 80+ for assisted living and the

health center. • Principal market is the Delmarva Peninsula in Virginia, Maryland, and Delaware. • Revenue is primarily derived from resident fees.

Hermitage Roanoke; located in Roanoke, Virginia

• A Pinnacle Living term contract life plan community. • As of 5/31/2018, Hermitage Roanoke has 22 available independent living residences, 50

assisted living residences, and 14 health center beds. • Target retirement age is 75+ for independent living, 85+ for assisted living, and 90+ for the

health center. • Principal markets are the counties of Bedford, Botetourt, and Franklin, the city of Salem, and

the town of Vinton, Virginia. • Revenue is primarily derived from resident fees.

9

NOTES TO COMBINED FINANCIAL STATEMENTS 1. Nature of Operations and Summary of Significant Accounting Policies (Continued)

Lydia Roper Home; located in Norfolk, Virginia

• Is an adult care residence that offers independent living and assistance with up to one activity of daily living.

• As of 5/31/2018, Lydia Roper Home has 26 available residences. • Target retirement age is 62 and older who are ambulatory with the assistance of a walker or

cane. • Principal market is the city of Norfolk, Virginia. • Revenue is primarily derived from resident fees.

Cedarfield; located in Henrico, Virginia • A Pinnacle Living Entrance Fee life plan community. • As of 5/31/2018, Cedarfield has a total of 307 available independent living residences, 40

assisted living residences, 20 memory support residences, and 60 health center beds. • Target retirement age for Cedarfield is 65 - 84 for independent living. Cedarfield is a life-care

community and as such fills its assisted living and health center primary through internal transfers.

• Principal market are the counties of Henrico and Goochland and parts of Richmond City, Virginia.

• Revenue is primarily derived from resident fees. In 2003, Pinnacle Living formed a non-stock, § 501(c)(3) (tax-exempt) entity, Virginia United Methodist Homes of Williamsburg, Inc., dba WindsorMeade Williamsburg (“WindsorMeade”). Pinnacle Living is the sole member of WindsorMeade and has the right to appoint its directors. WindsorMeade operates a life plan community in the Williamsburg, Virginia area and is a Pinnacle Living Entrance Fee life plan community. The target retirement age for WindsorMeade is 70+ for independent living. WindsorMeade predominately fills its assisted living and health center from internal transfers. WindsorMeade’s principal market is James City County and Williamsburg, Virginia. The majority of revenue is derived from resident fees. In 2013, Pinnacle Living formed a supporting organization as contemplated under § 509(a)(3) of the Internal Revenue Code entitled Hermitage Capital and Reserve Corporation (“HCRC”). HCRC is a Virginia non-stock corporation exempt from taxation pursuant to IRC § 501(c)(3). Pinnacle Living is the sole member of HCRC with the right to appoint all but one of the directors. WindsorMeade is entitled to appoint the other director. HCRC maintains funds that may only be used to support Pinnacle Living and/or WindsorMeade. Pinnacle Living, WindsorMeade, and HCRC are collectively referred to as the “Organization.”

10


Accounts receivable The Organization routinely extends credit in connection with the Organization’s activities to residents in its communities. Accounts are carried at their estimated collectible amounts and are generally extended on a short-term basis and therefore do not bear interest.

Advertising

The Organization expenses advertising costs as incurred. Total marketing expenses incurred were $3,241,268 and $2,737,434 for the years ended May 31, 2108 and 2017, respectively.

Allowance for uncollectible accounts

The allowance for uncollectible accounts is established through a provision for uncollectible accounts charged to expense. The allowance represents an amount which, in management’s judgment, will be adequate to absorb probable losses on existing accounts that may become uncollectible. Management’s judgment in determining the adequacy of the allowance is based on evaluations of the collectability of individual accounts receivable. Accounts receivable are charged against the allowance when deemed to be uncollectible. Subsequent recoveries are added to the allowance.

Assets whose use is limited Assets whose use is limited consist of the following: • Assets restricted by bond indenture agreements, which may be expended only in

connection with Pinnacle Living (for debt taken out on Cedarfield) and WindsorMeade. • Assets held for contingences with Pinnacle Living’s annuity bonds. • Assets restricted by escrow agreements to secure deposits made by prospective residents

of Pinnacle Living and WindsorMeade. • Assets held on behalf of the residents.

Beneficial interest in trusts

Beneficial interest in trusts are recognized when the decedent’s will is declared valid by the probate court. The amount recognized (fair value) is determined by discounting the expected future cash flows using an appropriate discount rate, which may be based on a 30 year U.S. Treasury security or the actual yield of the trust if known. Subsequent to the original recognition of the beneficial interest in a trust, the Organization will annually review the fair value of its beneficial interest and adjust as necessary. During the current year, the Organization changed the inputs utilized in the fair value calculations for the two largest beneficial interests because it believes the revised inputs produce a more representative fair value for those trusts. The change in inputs resulted in a significant negative adjustment which is reflected in the combined statement of activities for the year ended May 31, 2018. At times, the Organization may have beneficial interests in trusts where sufficient financial information is not readily available to record these interests. However, these interests may be significant.

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Bond issuance costs Bond issuance costs are amortized over the lives of the related bonds and included as part of interest expense. For Pinnacle Living, the 2012 bonds will amortize its bond issuance costs until 2028. The 2017 bonds have been refinanced and their corresponding bond issuance costs were expensed, and the new 2017C bonds will have their bond issuance costs amortized until 2053. For WindsorMeade, bond issuance costs for the 2013 bonds are part of reorganization items, net, and therefore expensed. The 2016 issue will amortize over five years. Amortization was $433,966 and $171,770 at May 31, 2018 and 2017, respectively.

Cash and cash equivalents

For purposes of reporting the combined statements of cash flows, the Organization includes all unrestricted general fund cash accounts, which are not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments with a maturity of three months or less as cash and cash equivalents.

Combination and basis of financial statement presentation

The accompanying combined financial statements include the accounts of Pinnacle Living, WindsorMeade and Hermitage Capital and Reserve Corporation. All significant intercompany transactions and balances have been eliminated in the combined financial statements. The combined financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and general industry practices.

Contributed services

During the years ended May 31, 2018 and 2017, the value of contributed services meeting the requirements for recognition in the combined financial statements was not material and has not been recorded. However, a substantial number of volunteers have donated significant amounts of their time in the Organization’s various activities.

Contributions Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence or nature of any donor restrictions.

12


Entrance fees Fees paid by a resident upon entering into a continuing care contract, net of the portion thereof that is refundable to the resident, are recorded as deferred revenue and are amortized to income using the straight-line method over the estimated remaining life expectancy of the resident. Entrance fees are listed on the combined cash flow statements as follows:

Proceeds of first generation entrance fees: This line item is listed as an operating activity on the combined statements of cash flows. It represents entrance fees received that are not restricted or designated for a particular purpose. Proceeds after first generation entrance fees: This line item is listed as an operating activity on the combined statements of cash flows. It represents entrance fees received after first generation entrance fees (or after a particular residence is originally occupied). These entrance fees are not restricted or designated for a particular purpose.

Cedarfield and WindsorMeade require residents in the independent living residences to pay a one-time upfront entrance fee, typically between $71,725 to $948,710, which is partially refundable in certain circumstances. The amount of the entrance fee varies depending upon the type and size of the residence, the type of contract plan selected, whether the contract contains a life-care benefit for the resident, the amount and timing of the refund, and other variables. These agreements are subject to regulation by the Virginia State Corporation Commission. In addition to a resident’s entrance fee, residents under all of the Organization’s entrance fee agreements also pay a monthly service fee, which entitles them to the use of certain amenities and services.

Estimates

The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) 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.

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Financial statement presentation The Organization is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. In addition, the Organization is required to present a statement of cash flows. The net asset classes are summarized as follows:

Unrestricted net assets include resources that can be used currently for the general operations of the Organization and amounts designated by the Board for contingencies. Temporarily restricted net assets include contributions restricted by donor designation. Support that is restricted by the donor is reported as an increase in unrestricted net assets if the restriction expires in the reporting period in which the support is recognized. All other donor-restricted support is reported as an increase in temporarily or permanently restricted net assets depending on the nature of the restriction. Temporarily restricted net assets are available for the support of resident programs and future benevolent care. Permanently restricted net assets include endowment fund investments to be held indefinitely, the income from which is expendable for the purpose of subsidizing the payment of charges of residents who would not otherwise have sufficient resources to contribute fully to their support and other operating purposes. Permanently restricted net assets encompass Pinnacle Living’s endowment fund.

Functional expenses The costs of providing the various programs and activities have been summarized on a functional basis in the accompanying combined statements of activities. Accordingly, certain costs have been allocated among programs and supporting services.

Income taxes Pinnacle Living, WindsorMeade, and HCRC are non-stock corporations exempt from taxation pursuant to IRC § 501(c)(3). Contributions to Pinnacle Living, WindsorMeade, and HCRC are tax deductible. Before soliciting contributions to HCRC, Pinnacle Living would amend its filing with the IRS to state the fact that it intended to make solicitations from the general public. None of the entities that comprise the Organization are classified as private foundations under IRC § 509(a)(1) and 170(b)(1)(A)(vi). HCRC is a supporting organization for Pinnacle Living and WindsorMeade pursuant to IRC § 509(a)(3). The Financial Accounting Standards Board issued guidance on accounting for uncertainty in income taxes. Management evaluated the Organization’s tax positions and concluded that the Organization had taken no uncertain tax positions that require adjustment to the combined financial statements to comply with the provisions of this guidance. With few exceptions, the Organization is no longer subject to income tax examinations by the taxing authorities for years ending before May 31, 2015. The Organization includes penalties and interest assessed by income taxing authorities in other non-operating charges and fees. The Organization did not have penalties and interest relating to income taxes for the years ended May 31, 2018 and 2017.

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Investments and investment income

Investments in marketable securities with readily determinable fair values and all investments in debt securities are reported at their fair values in the combined balance sheets. Unrealized gains and losses are included in the change in net assets as required by accounting standards. The Organization has also adopted authoritative guidance regarding the Endowment of Not-for Profit Organizations: Net Asset Classification of Fund Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act, and Enhanced Disclosures for All Endowment Funds.

Obligation to provide future services

The Organization annually calculates the present value of the net cost of future services and use of facilities to be provided to current residents and compares that amount with the balance of deferred revenue from entrance fees. If the present value of the net cost of future services and use of facilities exceeds the deferred revenue from entrance fees, a liability is recorded (obligation to provide future services and use of facilities) with the corresponding charge to income. Any obligation is discounted based on the expected long-term rate of return of invested funds. Pinnacle Living and WindsorMeade did not have an obligation to provide future services for fiscal 2018 or fiscal 2017.

Original issue discount and original issue premium The original issue premium (Pinnacle Living) and original issue discount (WindsorMeade) on bonds payable are amortized into interest expense using the effective interest method.

Property and equipment Property and equipment acquisitions are recorded at cost or, if donated, at fair market value at the date of the gift. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The following table summarizes the estimated useful lives of the assets:

Landscaping………………………………………………………………… 5 to 25 years Buildings……………………………………………………………………… 35 to 50 years Building additions or upgrades…………………………..………. 5 to 40 years Large equipment………………………………………………………… 5 to 15 years Small equipment………………………………………………………… 2 to 7 years

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2. Restrictions on Net Assets Unrestricted net assets consist of the following:

May 31, 2018

Operations Board Designated

For Contingencies Total Unrestricted

Net Assets Pinnacle Living $ 45,624,495 $ -- $ 45,624,495 WindsorMeade (10,226,432) -- (10,226,432) HCRC 7,524,159 -- 7,524,159 Eliminations (7,636,431) -- (7,636,431) Total $ 35,285,791 $ -- $ 35,285,791

May 31, 2017

Operations Board Designated

For Contingencies Total Unrestricted

Net Assets Pinnacle Living $ 44,913,407 $ 49,330 $ 44,962,737 WindsorMeade (6,711,417) -- (6,711,417) HCRC 7,487,596 -- 7,487,596 Eliminations (7,743,018) -- (7,743,018) Total $ 37,946,568 $ 49,330 $ 37,995,898

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3. Investments Investments are managed for the Organization by outside parties.

May 31, 2018 Pinnacle Living

Total Cost

Total FMV

Unrealized Appreciation

(Depreciation) Cash/Money market funds $ 44,937,840 $ 44,937,840 $ -- Mutual funds 17,624,576 18,998,738 1,374,162 Corporate stocks 5,292,640 7,714,421 2,421,781 Bonds 22,695,932 21,916,250 (779,682) Total Pinnacle Living $ 90,550,988 $ 93,567,249 $ 3,016,261

May 31, 2018 WindsorMeade

Total Cost

Total FMV


Cash/Money market funds $ 5,264,349 $ 5,264,349 $ -- Total WindsorMeade $ 5,264,349 $ 5,264,349 $ --

May 31, 2018 Hermitage Capital and Reserve Corporation

Total Cost

Total FMV

Unrealized Depreciation

Cash/Money market funds $ 21,657 $ 21,657 $ -- Mutual funds 6,987,908 6,684,561 (303,347) Total HCRC $ 7,009,565 $ 6,706,218 $ (303,347)

May 31, 2018 Combined Total

Total Cost

Total FMV


(Depreciation) Cash/Money market funds $ 50,223,846 $ 50,223,846 $ -- Mutual funds 24,612,484 25,683,299 1,070,815 Corporate stocks 5,292,640 7,714,421 2,421,781 Bonds 22,695,932 21,916,250 (779,682) Total Combined $ 102,824,902 $ 105,537,816 $ 2,712,914

The assets held by Pinnacle Living in WindsorMeade, valued at $8,037,897, would be considered Level 2 municipal bonds. This amount is eliminated on the combined statements.

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NOTES TO COMBINED FINANCIAL STATEMENTS 3. Investments (Continued)


Total Cost

Total FMV


Cash/Money market funds $ 5,344,410 $ 5,344,410 $ -- Mutual funds 18,509,127 19,519,294 1,010,167 Corporate stocks 5,288,364 7,147,657 1,859,293 Bonds 21,113,665 20,820,399 (293,266) Total Pinnacle Living $ 50,255,566 $ 52,831,760 $ 2,576,194


Total Cost

Total FMV


Cash/Money market funds $ 4,396,011 $ 4,396,011 $ -- Total WindsorMeade $ 4,396,011 $ 4,396,011 $ --

May 31, 2017 Hermitage Capital and Reserve Corporation

Total Cost

Total FMV

Unrealized Depreciation

Cash/Money market funds $ 28,299 $ 28,299 $ -- Mutual funds 6,804,164 6,641,256 (162,908) Total HCRC $ 6,832,463 $ 6,669,555 $ (162,908)

May 31, 2017 Combined Total

Total Cost

Total FMV


Cash/Money market funds $ 9,768,720 $ 9,768,720 $ -- Mutual funds 25,313,291 26,160,550 847,259 Corporate stocks 5,288,364 7,147,657 1,859,293 Bonds 21,113,665 20,820,399 (293,266) Total Combined $ 61,484,040 $ 63,897,326 $ 2,413,286

The assets held by Pinnacle Living in WindsorMeade, valued at $8,197,380, would be considered Level 2 municipal bonds. This amount is eliminated on the combined statements. These investments are shown on the combined balance sheets as follows:

2018 2017 Investments, unrestricted $ 54,439,537 $ 51,452,590 Investments, temporarily restricted -- 69,486 Investments, permanently restricted 2,973,938 2,973,938 Assets whose use is limited 48,124,341 9,401,312 Total combined $ 105,537,816 $ 63,897,326

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4. Fair Value Generally Accepted Accounting Principles (GAAP) requires disclosure of the fair value of certain assets, the valuation techniques employed to determine fair value, and provides the framework for measuring fair value. The fair value framework includes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the measurement in its entirety. Level 1 Input

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. A Level 1 input will be available for many financial assets and liabilities, some of which might be exchanged in multiple active markets.

Level 2 Input

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data (market-corroborated inputs). If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3 Input

Level 3 inputs are unobservable inputs for the asset or liability, that is, inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability (including assumptions about risk) developed based on the best information available in the circumstances.

A description of the valuation methodologies used for assets measured by fair value is below. There have been no changes in the methodologies used at May 31, 2018 and 2017. Money market funds

Money market funds are valued at the net asset value of shares held at year end. Mutual funds

Mutual funds are valued at the net asset value of shares held at year end.

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NOTES TO COMBINED FINANCIAL STATEMENTS 4. Fair Value (Continued)

Corporate stocks

Corporate stocks are valued based on quoted market prices, when available, or market prices provided by recognized broker dealers.

Bonds Corporate bonds are valued using recently executed transactions, market price quotations (where observable), bond spreads or credit default swap spreads. The spread data used are for the same maturity as the bond. If the spread data does not reference the issuer, then data that references a comparable issuer is used. When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, bonds, or single-name credit default swap spreads and recovery rates based on collateral values as key inputs. Corporate bonds are generally categorized in Level 2 of the fair value hierarchy. The fair value of government bonds is generally based on quoted prices in active markets. When quoted prices are not available, fair value is determined based on a valuation model that uses inputs that include interest-rate yield curves, cross-currency basis index spreads, and country credit spreads similar to the bond in terms of issuer, maturity and seniority. Government bonds are generally categorized in Levels 1 and 2.

Beneficial interest in trusts Fair value for the beneficial interest in charitable trusts is determined by calculating the present value of the future distributions expected to be received from the trust using a discount rate.

The methods described above may produce a fair value calculation that may not be indicative of net realized value or reflective of future fair values. Furthermore, while Pinnacle Living believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

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Fiscal 2018 information is provided below:

May 31, 2018 Pinnacle Living Total

FMV

Level 1

Level 2

Level 3 Cash/Money Market Funds Cash/Money market funds $ 44,937,840 $ 44,937,840 $ -- $ -- Mutual Funds International 3,247,107 3,247,107 -- -- Large cap value 8,111,685 8,111,685 -- -- Small cap value 3,287,068 3,287,068 -- -- Short-term bonds 4,352,878 4,352,878 -- -- Corporate Stocks International 86,329 86,329 -- -- Large cap core 931,932 931,932 -- -- Large cap growth 3,140,461 3,140,461 -- -- Large cap value 580,791 580,791 -- -- Mid cap core 741,857 741,857 -- -- Mid cap growth 789,657 789,657 -- -- Mid cap value 1,035,437 1,035,437 -- -- Real estate 186,256 186,256 -- -- Small cap core 18,756 18,756 -- -- Small cap growth 70,415 70,415 -- -- Small cap value 132,530 132,530 -- -- Bonds Agency 7,021,345 7,021,345 -- -- Corporate 12,433,415 -- 12,433,415 -- Government 2,461,490 2,461,490 -- -- Beneficial interest in trusts 18,257,029 -- -- 18,257,029 Total Pinnacle Living $ 111,824,278 $ 81,133,834 $ 12,433,415 $ 18,257,029

May 31, 2018 WindsorMeade Total

FMV

Level 1

Level 2

Level 3 Cash/Money Market Funds Domestic fixed income $ 5,264,349 $ 5,264,349 $ -- $ -- Total WindsorMeade $ 5,264,349 $ 5,264,349 $ -- $ --

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May 31, 2018 Hermitage Capital and Reserve Corporation Total

FMV

Level 1

Level 2

Level 3 Cash/Money Market Funds Cash/Money market funds $ 21,657 $ 21,657 $ -- $ -- Mutual Funds Short-term bonds 6,684,561 6,684,561 -- -- Total HCRC $ 6,706,218 $ 6,706,218 $ -- $ --

May 31, 2018 Combined Total Total

FMV

Level 1

Level 2

Level 3 Cash/Money Market Funds Cash $ 44,959,497 $ 44,959,497 $ -- $ -- Domestic fixed income 5,264,349 5,264,349 -- -- Mutual Funds International 3,247,107 3,247,107 -- -- Large cap value 8,111,685 8,111,685 -- -- Small cap value 3,287,068 3,287,068 -- -- Short-term bonds 11,037,439 11,037,439 -- -- Corporate Stocks International 86,329 86,329 -- -- Large cap core 931,932 931,932 -- -- Large cap growth 3,140,461 3,140,461 -- -- Large cap value 580,791 580,791 -- -- Mid cap core 741,857 741,857 -- -- Mid cap growth 789,657 789,657 -- -- Mid cap value 1,035,437 1,035,437 -- -- Real estate 186,256 186,256 -- -- Small cap core 18,756 18,756 -- -- Small cap growth 70,415 70,415 -- -- Small cap value 132,530 132,530 -- -- Bonds Agency 7,021,345 7,021,345 -- -- Corporate 12,433,415 -- 12,433,415 -- Government 2,461,490 2,461,490 -- -- Beneficial interest in trusts 18,257,029 -- -- 18,257,029 Total Combined $ 123,794,845 $ 93,104,401 $ 12,433,415 $ 18,257,029

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Fiscal 2017 information is provided below.

May 31, 2017 Pinnacle Living Total

FMV

Level 1

Level 2

Level 3 Cash/Money Market Funds Cash/Money market funds $ 5,344,410 $ 5,344,410 $ -- $ -- Mutual Funds International 2,848,789 2,848,789 -- -- Large cap value 7,670,915 7,670,915 -- -- Small cap value 2,937,622 2,937,622 -- -- Short-term bonds 6,061,968 6,061,968 -- -- Corporate Stocks International -- -- -- -- Large cap core 994,650 994,650 -- -- Large cap growth 2,864,373 2,864,373 -- -- Large cap value 438,618 438,618 -- -- Mid cap core 795,801 795,801 -- -- Mid cap growth 936,590 936,590 -- -- Mid cap value 716,420 716,420 -- -- Real estate 183,469 183,469 -- -- Small cap core 51,163 51,163 -- -- Small cap growth 51,003 51,003 -- -- Small cap value 115,570 115,570 -- -- Bonds Agency 6,280,461 6,280,461 -- -- Corporate 12,182,717 -- 12,182,717 -- Government 2,357,221 2,357,221 -- -- Beneficial interest in trusts 22,636,423 -- -- 22,636,423 Total Pinnacle Living $ 75,468,183 $ 40,649,043 $ 12,182,717 $ 22,636,423

May 31, 2017 WindsorMeade Total

FMV

Level 1

Level 2

Level 3 Cash/Money Market Funds Domestic fixed income $ 4,396,011 $ 4,396,011 $ -- $ -- Total WindsorMeade $ 4,396,011 $ 4,396,011 $ -- $ --

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May 31, 2017 Hermitage Capital and Reserve Corporation Total

FMV

Level 1

Level 2

Level 3 Cash/Money Market Funds Cash/Money market funds $ 28,299 $ 28,299 $ -- $ -- Mutual Funds Short-term bonds 6,641,256 6,641,256 -- -- Total HCRC $ 6,669,555 $ 6,669,555 $ -- $ --

May 31, 2017 Combined Total Total

FMV

Level 1

Level 2

Level 3 Cash/Money Market Funds Cash/Money market funds $ 5,372,709 $ 5,372,709 $ -- $ -- Domestic fixed income 4,396,011 4,396,011 -- -- Mutual Funds International 2,848,789 2,848,789 -- -- Large cap value 7,670,915 7,670,915 -- -- Small cap value 2,937,622 2,937,622 -- -- Short-term bonds 12,703,224 12,703,224 -- -- Corporate Stocks International -- -- -- -- Large cap core 994,650 994,650 -- -- Large cap growth 2,864,373 2,864,373 -- -- Large cap value 438,618 438,618 -- -- Mid cap core 795,801 795,801 -- -- Mid cap growth 936,590 936,590 -- -- Mid cap value 716,420 716,420 -- -- Real estate 183,469 183,469 -- -- Small cap core 51,163 51,163 -- -- Small cap growth 51,003 51,003 -- -- Small cap value 115,570 115,570 -- -- Bonds Agency 6,280,461 6,280,461 -- -- Corporate 12,182,717 -- 12,182,717 -- Government 2,357,221 2,357,221 -- -- Beneficial interest in trusts 22,636,423 -- -- 22,636,423 Total Combined $ 86,533,749 $ 51,714,609 $ 12,182,717 $ 22,636,423

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Assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3 inputs): Beneficial interest in trusts June 1, 2016 $ 19,531,207 Change in value 3,105,216 May 31, 2017 22,636,423 Change in value (4,379,394) May 31, 2018 $ 18,257,029

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5. Assets Whose Use is Limited Assets whose use is limited consists of the following:

May 31, 2018 Pinnacle

Living

WindsorMeade

Total Investments held under indenture agreement by Trustee

Bond principal fund $ 2,045,763 $ 316,011 $ 2,361,774 Bond interest fund 575,902 1,145,660 1,721,562 Debt service reserve fund 5,364,356 2,295,300 7,659,656 Capital reserve and replacement fund -- 1,507,378 1,507,378 Construction and cost of issuance fund 31,219,292 -- 31,219,292 Funded interest account 3,609,055 -- 3,609,055 Investments held in reserve for contingencies Annuity bonds 45,624 -- 45,624 Total investments as assets whose use is limited 42,859,992 5,264,349 48,124,341 Resident accounts 32,867 -- 32,867 Assets held from prospective members To secure deposits 1,600,420 121,022 1,721,442 As future deposits 506,000 165,000 671,000 Total assets whose use is limited $ 44,999,279 $ 5,550,371 $ 50,549,650

There were no assets whose use was limited for HCRC in fiscal year 2018.


Living

WindsorMeade

Total Investments held under indenture agreement by Trustee

Bond principal fund $ 1,680,087 $ 215,182 $ 1,895,269 Bond interest fund 430,795 1,135,102 1,565,897 Debt service reserve fund 2,845,089 2,295,636 5,140,725 Capital reserve and replacement fund -- 750,091 750,091 Investments held in reserve for contingencies Annuity bonds 49,330 -- 49,330 Total investments as assets whose use is limited 5,005,301 4,396,011 9,401,312 Resident accounts 36,700 -- 36,700 Assets held from prospective members To secure deposits 718,857 294,413 1,013,270 As future deposits 516,000 141,000 657,000 Total assets whose use is limited $ 6,276,858 $ 4,831,424 $ 11,108,282

There were no assets whose use was limited for HCRC in fiscal year 2017.

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6. Property and Equipment A summary of property and equipment is as follows:


Living

WindsorMeade

Total Land and landscaping $ 7,238,034 $ 4,870,578 $ 12,108,612 Buildings 145,727,484 111,829,731 257,557,215 Furniture and equipment 20,108,707 3,285,954 23,394,661 Leasehold improvements 62,112 -- 62,112 Capital projects in process 20,784,189 7,899,386 28,683,575 Capitalized interest 549,565 385,331 934,896 Property and equipment, gross 194,470,091 128,270,980 322,741,071 Less: Accumulated depreciation (102,852,662) (32,994,683) (135,847,345) Property and equipment, net $ 91,617,429 $ 95,276,297 $ 186,893,726

HCRC did not have any property and equipment for fiscal 2018.


Living

WindsorMeade

Total Land and landscaping $ 7,706,095 $ 4,831,190 $ 12,537,285 Buildings 134,814,706 111,001,998 245,816,704 Furniture and equipment 19,574,343 3,182,340 22,756,683 Leasehold improvements 62,112 -- 62,112 Capital projects in process 12,820,348 5,855,247 18,675,595 Property and equipment, gross 174,977,604 124,870,775 299,848,379 Less: Accumulated depreciation (96,448,257) (29,599,779) (126,048,036) Property and equipment, net $ 78,529,347 $ 95,270,996 $ 173,800,343

HCRC did not have any property and equipment for fiscal 2017.

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7. Bonds and Notes Payable PINNACLE LIVING On August 9, 2012, Pinnacle Living entered into a loan agreement with the Economic Development Authority of Henrico County, Virginia to borrow the proceeds of the Authority’s $30,425,000 Residential Care Facility Revenue Refunding Bonds, Series 2012. The Series 2012 Bonds are secured by a pledge of Pinnacle Living’s revenues, a first lien deed of trust on the real estate portion of the Cedarfield facility, and a security interest in the equipment of the Cedarfield facility. The primary purpose of this loan was (a) refunding of the outstanding principal balance of the Authority’s $45,505,000 Residential Care Facility Revenue Refunding Bonds, Series 2002A and Series 2002B, (b) funding a Debt Service Reserve Fund for the Series 2012 Bonds, and (c) paying costs of issuance, and other amounts relating to the Series 2012 Bonds. The interest rates for the Series 2012 Bonds are fixed and range from 3.00% to 5.00%. The Series 2012 Bonds principal and interest payments are as follows:

May 31, 2018 Fiscal Year Principal Interest Total 2019 $ 1,865,000 $ 947,075 $ 2,812,075 2020 1,920,000 887,225 2,807,225 2021 1,985,000 818,278 2,803,278 2022 2,060,000 729,706 2,789,706 2023 2,160,000 624,206 2,784,206 2024 2,270,000 513,456 2,783,456 2025 2,385,000 397,081 2,782,081 2026 2,500,000 274,956 2,774,956 2027 2,410,000 161,244 2,571,244 2028 2,515,000 55,016 2,570,016 Subtotal 22,070,000 5,408,243 27,478,243 Original issue premium 437,863 -- 437,863 $ 22,507,863 $ 5,408,243 $ 27,916,106

On August 9, 2012, simultaneously with the issuance of the Series 2012 Bonds, Pinnacle Living entered into a taxable bank loan in the amount up to $15,000,000 with Branch Banking and Trust Company. The purpose of the loan was to finance routine capital expenditures and, if applicable, any expansion projects. The bank loan was secured on parity basis with the Series 2012 Bonds, by a pledge of Pinnacle Living’s revenues, a first lien deed of trust on the real estate portion of the Cedarfield facility, and a security interest in the equipment of the Cedarfield facility. On September 29, 2016, the Branch Banking and Trust Company bank loan was replaced by a taxable bank loan with SunTrust Bank in a principal amount of up to $10,000,000 bearing interest at a variable rate equal to one-month LIBOR plus 1.30%. On April 18, 2017, the SunTrust loan was paid in full from the proceeds of the Series 2017A Bond (see below).

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NOTES TO COMBINED FINANCIAL STATEMENTS 7. Bonds and Notes Payable (Continued)

On April 18, 2017, Pinnacle Living entered into a loan agreement with the Virginia Small Business Financing Authority to borrow the proceeds of the Authority’s Residential Care Facility Revenue Bonds, Series 2017A and Series 2017B in the respective principal amount of $25,060,000 and $25,595,000. The primary purpose of the Series 2017A Bond was to (a) refund capital expenditures originally financed under a line of credit with Branch Banking and Trust Company (subsequently replaced by a line of credit with SunTrust as described above), (b) finance renovations and upgrades to Cedarfield’s dining facilities, (c) finance all design and engineering costs and (d) pay costs of issuance. The interest rate on the Series 2017A Bond is a variable rate equal to 67% of one-month LIBOR plus a spread of 1.43% if Pinnacle Living’s ratio of unrestricted liquidity to outstanding indebtedness is equal to or greater than 55% or a spread of 1.51% if the ratio is less than 55%. The primary purpose of the Series 2017B Bond was to (a) finance construction of a parking structure at Cedarfield, (b) finance construction of a health and wellness center at Cedarfield, and (c) finance construction of a new health service household. The interest rate on the series 2017B Bond is the same as the rate on the Series 2017A Bond plus 25 basis points during the three-year construction period. On December 27, 2017, the SunTrust loan was paid in full from the proceeds of the Series 2017C Bonds (see below). On December 27, 2017, Pinnacle Living entered into a loan agreement with the Virginia Small Business Financing Authority to borrow the proceeds of the Authority’s Residential Care Facility Revenue Bonds, Series 2017C in the amount of $54,710,000. The primary purpose of the Series 2017C Bond was to refund the Authority’s $25,060,000 and $25,595,000 Residential Care Facility Revenue Bonds, Series 2017A and Series 2017B, (b) funding a Debt Service Reserve Fund for the Series 2017C Bonds, and (c) paying costs of issuance, and other amounts relating to the Series 2017 Bonds. The interest rates for the Series 2017C Bonds are fixed and range from 3.50% to 5.00%.

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May 31, 2018 Fiscal Year Principal Interest Total 2019 $ -- $ 2,521,561 $ 2,521,561 2020 -- 2,717,850 2,717,850 2021 -- 2,717,850 2,717,850 2022 -- 2,717,850 2,717,850 2023 -- 2,717,850 2,717,850 2024 -- 2,717,850 2,717,850 2025 -- 2,717,850 2,717,850 2026 -- 2,717,850 2,717,850 2027 -- 2,717,850 2,717,850 2028 -- 2,717,850 2,717,850 2029 870,000 2,702,625 3,572,625 2030 910,000 2,664,650 3,574,650 2031 955,000 2,618,025 3,573,025 2032 1,005,000 2,569,025 3,574,025 2033 1,055,000 2,517,525 3,572,525 2034 1,110,000 2,463,400 3,573,400 2035 1,175,000 2,406,275 3,581,275 2036 1,230,000 2,346,150 3,576,150 2037 1,300,000 2,282,900 3,582,900 2038 1,365,000 2,216,275 3,581,275 2039 1,430,000 2,148,700 3,578,700 2040 1,505,000 2,077,625 3,582,625 2041 1,585,000 2,000,375 3,585,375 2042 1,840,000 1,914,750 3,754,750 2043 2,060,000 1,817,250 3,877,250 2044 2,165,000 1,711,625 3,876,625 2045 2,280,000 1,600,500 3,880,500 2046 2,395,000 1,483,625 3,878,625 2047 2,520,000 1,360,750 3,880,750 2048 2,650,000 1,231,500 3,881,500 2049 2,790,000 1,095,500 3,885,500 2050 4,750,000 907,000 5,657,000 2051 4,995,000 663,375 5,658,375 2052 5,250,000 407,250 5,657,250 2053 5,520,000 138,000 5,658,000 Subtotal 54,710,000 72,326,886 127,036,886 Original issue discount 3,075,180 -- 3,075,180 $ 57,785,180 $ 72,326,886 $ 130,112,066

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WINDSORMEADE On May 31, 2013, WindsorMeade entered into a loan agreement with the Economic Development Authority of James City County, Virginia with respect to the restructuring of the Authority’s $114,270,000 Residential Care Facility Revenue Bonds, Series 2007A, 2007B, and 2007C through the issuance of the Authority's Residential Care Facility Revenue Bonds Series 2013A (Senior) (the "Series 2013A Senior Bonds"), the Residential Care Facility Revenue Bonds Series 2013A (Subordinate) (the "Series 2013A Subordinate Bonds"), the Residential Care Facility Revenue Bonds Series 2013B (Senior) (the "Series 2013B Senior Bonds") and the Residential Care Facility Revenue Bonds Series 2013C (Senior) (the "Series 2013C Senior Bonds" and together with the Series 2013A Senior Bonds, the Series 2013A Subordinate Bonds and the Series 2013B Senior Bonds, (the "Series 2013 Bonds"). The Series 2013 Bonds are secured by a pledge of WindsorMeade’s revenues, a lien on the real estate portion of the WindsorMeade facility and improvements thereon, and a security agreement in the equipment of the WindsorMeade facility. The Series 2013 Bonds are as follows:

• Series 2013A Senior Bonds: o Principal amount: $30,000,160 o Final maturity: June 1, 2043 o Fixed rate bonds o Stated interest 6% per annum

• Series 2013A Subordinate Bonds: o Initial principal amount: $9,703,660 o Final maturity: June 1, 2048 o Fixed rate bonds o Stated interest rate 2% per annum

• Series 2013B Senior Bonds: o Aggregate principal amount: $6,500,000 o Final maturity: June 1, 2042 o Fixed rate bonds o Interest is 6% per annum

• Series 2013C Senior Bonds: o Aggregate principal amount: $2,000,000 o Final maturity: June 1, 2028 o Fixed rate bonds o Interest is 4% per annum

Additionally, on May 31, 2013 Pinnacle Living and WindsorMeade entered into a revolving loan agreement (“revolver”) to provide WindsorMeade with a revolving loan in a principal amount up to $5,600,000. The term of the revolver will end on May 31, 2023. Any monies advanced under the revolver will bear interest at 4% per annum. As of May 31, 2018, no monies have been drawn on the revolver. WindsorMeade is required to make quarterly interest installments on advances under the revolver on each March 1, June 1, September 1, and December 1, commencing with the first day of the first quarter following the first advance of proceeds thereunder. Beginning with the first day of the first quarter following the first advance of proceeds thereunder, WindsorMeade is required to make quarterly principal payments with respect to amounts advanced under the revolver, but only to the extent that the amount of such payments will not cause WindsorMeade's Days' Cash on Hand to go lower than 120 Days' Cash on Hand.

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The WindsorMeade Series 2013 bonds will be accounted for using the effective interest rate method. In using the effective interest rate method, the carrying values of the bonds are calculated as the present value of the coupon payments (based on the stated interest rate), principal payment, and the market interest rate at the time of issuance. Depending on the amount calculated as the carrying value of the bonds, the bonds can be purchased at par or with a premium or discount. If the bond issue is determined to be issued at a premium or discount this difference between the par value and purchase price is amortized over the life of the bond as interest expense. Please see below for a summary of details used to calculate the carrying value of the 2013 bonds on the balance sheet at emergence.

Bond Issue

Stated Interest Rate

Effective Interest Rate

Maturity Date

Par Value

Original Issue Discount

2013A–Senior Bonds 6% 7% 6/1/2043 $30,000,160 $3,741,730 2013A–Subordinate Bonds 2% 12% 6/1/2048 9,703,660 9,387,677 2013B–Senior Bonds 6% 5.50%-7.00% 6/1/2042 6,500,000 480,777 2013C–Senior Bonds 4% 5.98%-7.87% 6/1/2028 2,000,000 500,165

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The Series 2013A Senior Bonds (fixed rate) principal and interest payments are as follows:

May 31, 2018 Fiscal Year Principal Interest Total 2019 $ 190,000 $ 1,788,600 $ 1,978,600 2020 190,000 1,777,200 1,967,200 2021 485,000 1,756,950 2,241,950 2022 570,000 1,725,300 2,295,300 2023 605,000 1,690,050 2,295,050 2024 640,000 1,652,700 2,292,700 2025 680,000 1,613,100 2,293,100 2026 720,000 1,571,100 2,291,100 2027 760,000 1,526,700 2,286,700 2028 805,000 1,479,750 2,284,750 2029 855,000 1,429,950 2,284,950 2030 905,000 1,377,150 2,282,150 2031 960,000 1,321,200 2,281,200 2032 1,020,000 1,261,800 2,281,800 2033 1,080,000 1,198,800 2,278,800 2034 1,145,000 1,132,050 2,277,050 2035 1,215,000 1,061,250 2,276,250 2036 1,285,000 986,250 2,271,250 2037 1,365,000 906,750 2,271,750 2038 1,445,000 822,450 2,267,450 2039 1,530,000 733,200 2,263,200 2040 1,625,000 638,550 2,263,550 2041 1,720,000 538,200 2,258,200 2042 1,825,000 431,850 2,256,850 2043 1,935,000 319,050 2,254,050 2044 4,350,000 130,500 4,480,500 Subtotal 29,905,000 30,870,450 60,775,450 Original issue discount (2,719,470) -- (2,719,470) $ 27,185,530 $ 30,870,450 $ 58,055,980

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The Series 2013A Subordinate Bonds:

The Series 2013A Subordinate Bonds have a final maturity date of June 1, 2048, bear interest at a rate of 2.0% per annum and were issued in the initial principal amount of $9,703,660. Principal payments on the Series 2013A Subordinate Bonds will not be in fixed amounts but will be entirely dependent upon the amount of WindsorMeade’s "Excess Funds" as defined in the loan agreement for the Series 2013 Bonds. Beginning with the fiscal year ending May 31, 2016 and through the fiscal year ending May 31, 2025, interest on the Series 2013A Subordinate Bonds is due and payable in full. Payment of interest on the Series 2013A Subordinate Bonds has been guaranteed by Pinnacle Living through October 1, 2025. Thereafter, interest on the Series 2013A Subordinate Bonds is due and payable each October 1, commencing October 1, 2014, in an amount equal to Excess Funds as set forth in the loan agreement and the bond indenture for the Series 2013 Bonds. Through October 1, 2027, to the extent WindsorMeade does not have sufficient Excess Funds to pay accrued interest on the Series 2013A Subordinate Bonds for the applicable interest accrual period, accrued and unpaid interest accretes into the principal amount of the Series 2013A Subordinate Bonds. Commencing October 1, 2021 and each October 1 thereafter until maturity, interest and principal on the Series 2013A Subordinate Bonds is due and payable in an amount equal to Excess Funds as set forth in the loan agreement and bond indenture for the Series 2013 Bonds. After the accretion period ends on June 1, 2027, to the extent WindsorMeade does not have an obligation to make loan payments, interest on the Series 2013A Subordinate Bonds shall be deferred to the following October 1 and such interest shall bear interest until paid at the same rate set forth in the Series 2013A Subordinate Bond. If the Series 2013A Subordinate Bonds have not already been paid or redeemed in full, the final payment made on the Series 2013A Subordinate Bonds will be in the amount of the final payment on the Subordinate Bonds pursuant to Section 4.1(a)(4) of the Loan Agreement, which states on October 1, 2048, the entire outstanding and unpaid principal and accrued interest thereon, unless sooner prepaid, shall be due and payable. As set forth in Section 4.1(a)(4)(c), simultaneously with the interest and principal payments made on the Series 2013A Subordinate Bonds, as described above, and commencing with the Fiscal Year ending May 31, 2021, and ending with the Fiscal Year ending May 31, 2048, WindsorMeade shall pay to Pinnacle Living the Manager Incentive Payment to the extent that interest or principal payments are made. The Manager Incentive Payment is the amount due under the Administrative Services Agreement equal to 10% of the aggregate annual payments with respect to the principal and interest on the Series 2013A Subordinate Bonds. The calculation of the Manager Incentive Payments is subject to the amount of WindsorMeade’s “Excess Funds” as defined in the loan agreement for the Series 2013 Bonds. Senior 2013A Subordinate bonds as of June 1, 2016 $9,897,733 Fiscal 2016 interest was paid and not accreted into principal 0 Senior 2013A Subordinate bonds as of May 31, 2017 $9,897,733 Fiscal 2017 interest was paid and not accreted into principal 0 Senior 2013A Subordinate bonds as of May 31, 2018 $9,897,733

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The Series 2013B Senior Bonds (fixed rate) principal and interest payments are as follows:

May 31, 2018 Fiscal Year Principal Interest Total 2019 $ -- $ 390,000 $ 390,000 2020 -- 390,000 390,000 2021 -- 390,000 390,000 2022 155,000 385,350 540,350 2023 155,000 376,050 531,050 2024 170,000 366,300 536,300 2025 175,000 355,950 530,950 2026 190,000 345,000 535,000 2027 200,000 333,300 533,300 2028 215,000 320,850 535,850 2029 225,000 307,650 532,650 2030 240,000 293,700 533,700 2031 255,000 278,850 533,850 2032 265,000 263,250 528,250 2033 285,000 246,750 531,750 2034 300,000 229,200 529,200 2035 320,000 210,600 530,600 2036 340,000 190,800 530,800 2037 355,000 169,950 524,950 2038 380,000 147,900 527,900 2039 405,000 124,350 529,350 2040 425,000 99,450 524,450 2041 455,000 73,050 528,050 2042 480,000 45,000 525,000 2043 510,000 15,300 525,300 Subtotal 6,500,000 6,348,600 12,848,600 Original issue discount (380,867) -- (380,867) $ 6,119,133 $ 6,348,600 $ 12,467,733

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The Series 2013C Senior Bonds (fixed rate) principal and interest payments are as follows:

May 31, 2018 Fiscal Year Principal Interest Total 2019 $ 125,000 $ 72,700 $ 197,700 2020 135,000 67,500 202,500 2021 140,000 62,000 202,000 2022 150,000 56,200 206,200 2023 160,000 50,000 210,000 2024 170,000 43,400 213,400 2025 175,000 36,500 211,500 2026 190,000 29,200 219,200 2027 200,000 21,400 221,400 2028 210,000 13,200 223,200 2029 225,000 4,500 229,500 Subtotal 1,880,000 456,600 2,336,600 Original issue discount (246,831) -- (246,831) $ 1,633,169 $ 456,600 $ 2,089,769

On September 29, 2016, WindsorMeade entered into a loan agreement with the Economic Development Authority of James City County to borrow the proceeds of the Authority’s $7,000,000 Residential Care Facility Revenue Bond, Series 2016. The Series 2016 Bond is secured by a pledge of WindsorMeade’s revenues, a first lien deed of trust on the real estate portion of WindsorMeade, and a security interest in the equipment of the WindsorMeade facility. The primary purpose of the Series 2016 Bond was to (a) finance the renovation and expansion of the health center at WindsorMeade, and (b) pay costs of issuance. The interest rate on the Series 2016 Bond is a variable rate equal to 75% of one-month LIBOR plus a spread of 2.25%. Repayment of interest is monthly. Beginning October 1, 2018, WindsorMeade shall make monthly principal payments equal to 1/336th of the Bond. The Series 2016 Bond is subject to mandatory purchase by WindsorMeade on September 29, 2026. Payments of principal and interest on the Series 2016 Bond are guaranteed by Pinnacle Living, subject to reduction or termination upon the occurrence of certain events. HERMITAGE CAPITAL AND RESERVE CORPORATION Hermitage Capital and Reserve Corporation had no bonds or loans outstanding effective May 31, 2018 or 2017.

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THE COMBINED ORGANIZATION The bonds and notes payable for fiscal years 2018 and 2017 shown on the combined balance sheets consist of the following:

2018 Principal

2017 Principal

Pinnacle Living 2012 senior bonds $ 22,070,000 $ 23,885,000 Premium on 2012 senior bonds 437,863 519,368 2017A and 2017B senior bonds -- 10,999,702 2017C senior bonds 54,710,000 -- Premium on 2017C senior bonds 3,075,180 -- Bond issuance costs, net (1,620,061) (1,016,469) Total bonds payable $ 78,672,982 $ 34,387,601 WindsorMeade 2013A senior bonds $ 29,905,000 $ 30,000,160 Discount on 2013A senior bonds (2,719,470) (2,921,550) 2013A subordinate bonds 9,897,733 9,897,733 Discount on 2013A subordinate bonds (8,046,576) (8,314,800) 2013B senior bonds 6,500,000 6,500,000 Discount on 2013B senior bonds (380,867) (400,847) 2013C senior bonds 1,880,000 2,000,000 Discount on 2013 senior bonds (246,831) (293,955) Notes payable 232,957 55,600 Bond issuance costs, net (74,138) (82,665) Total bonds and notes payable $ 36,947,808 $ 36,439,676 Total bonds and notes payable, Combining Balance Sheets $ 115,620,790 $ 70,827,277 Less: Eliminations between Pinnacle Living and WindsorMeade: 2013B senior bonds (6,500,000) (6,500,000) 2013C senior bonds (1,880,000) (2,000,000) Discount on 2013B senior bonds 380,867 400,847 Discount on 2013C senior bonds 246,831 293,955 Total bonds and notes payable, Combined Balance Sheets $ 107,868,488 $ 63,022,079

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8. Employee Retirement Plan

The Organization has a defined contribution retirement plan. All employees may participate in the plan, however, full-time employees and those part-time employees who work over twenty hours a week are eligible for employer contributions as of the first payroll period which includes the anniversary date following twelve months of service. Employer contributions to the plan are approved by the Board of Directors. The total retirement expense for the years ended May 31, 2018 and 2017 was $1,752,322 and $1,515,109, respectively.

9. Concentrations of Credit Risk

The Organization has checking accounts and money market mutual funds, at financial institutions, which are not fully insured by the FDIC. The checking accounts are insured to the FDIC limit of $250,000 per financial institution. At May 31, 2018, the Organization had cash balances in a financial institution in excess of the amounts insured by the FDIC. The Organization does not require collateral for any of its receivables. In certain circumstances and on a case-by-case basis, WindsorMeade may grant a prospective resident the option of deferring the payment of their entrance fee for up to four months in order to allow that resident to obtain the funds necessary to pay the entrance fee. This optional deferral is typically offered in circumstances where a resident has been unable to sell an existing home and requires funds from the sale in order to pay the entrance fee. This optional deferral program is an integral part of WindsorMeade’s ability to attract interested and eligible residents. In the event the entrance fee is not paid on the entrance fee due date, the resident agrees to pay a finance charge of nine percent per annum until either (i) the balance of the entrance fee is paid in full or (ii) the Residency Agreement is terminated.

10. Commitments and Contingencies

Pinnacle Living entered into a long-term operating lease agreement for office facilities. The lease runs until November 30, 2022. The following is a schedule of the rental payments under the lease agreement:

Year Ending May 31, 2019 $ 164,287 May 31, 2020 168,395 May 31, 2021 172,604 May 31, 2022 176,920 May 31, 2023 90,301 Total future lease payments $ 772,507

Total rental expense for the years ended May 31, 2018 and 2017 amounted to $213,531 and $217,432, respectively.

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NOTES TO COMBINED FINANCIAL STATEMENTS 10. Commitments and Contingencies (continued)

Self-Funded Health Insurance • The Organization participates in a self-funded health insurance plan. The plan is managed by Scott

Benefit Services with administrative services provided by Anthem Blue Cross and Blue Shield and stop loss reinsurance provided by QBE.

• The Plan year runs from October 1 – September 30. • Financial projections are based on a blended analysis of historical claims experience and evaluation

of manual claims. Due to the Organization’s size and credibility of claims data, financial projections are 90% to 100% weighted toward projections based on actual paid claims experience.

• The Organization’s self-funded health plan maintains an individual stop loss policy of $75,000 and an aggregate stop loss policy of 125% of expected claims.

• There are no tax implications as all members of the captive are non-profit corporations. • As of May 31, 2018 and 2017 the incurred liability was $323,811 and $300,202, respectively.

The Organization

The Organization, from time to time, is a party to various legal actions normally associated with life plan communities, the aggregate effect of which, in management’s and legal counsel’s opinion, would not be material to the financial condition of the Organization.

11. Related Party Transactions

The nature of the relationship between Pinnacle Living, WindsorMeade, and HCRC is described in footnote 1, Nature of Operations and Summary of Significant Accounting Policies. According to the Accounting Standards Codification (ASC) 850-10-50-1 “disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required.” All intercompany transactions between Pinnacle Living, WindsorMeade, and HCRC have been eliminated in the combined financial statements.

12. Fair Value of Financial Instruments

Professional standards require disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Professional standards exclude certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Organization. The following methods and assumptions were used by the Organization in estimating the fair value of its financial instruments:

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NOTES TO COMBINED FINANCIAL STATEMENTS 12. Fair Value of Financial Instruments (Continued)

Cash and cash equivalents, accounts receivable, other receivables, accrued income receivable, beneficial interest in trusts, and notes payable

The carrying amount approximates fair value. Investments

Fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Bonds payable

The fair values are estimated using a discounted cash flow calculation that applies interest rates currently being offered on similar bond financing and does not reflect market risk.

Organization’s financial assets and liabilities at May 31, 2018 and 2017:

May 31 2018 2017 Carrying

Amount Estimated

Fair Value Carrying

Amount Estimated

Fair Value Financial assets Cash and cash equivalents $ 16,072,000 $ 16,072,000 $ 17,285,000 $ 17,285,000 Accounts receivable 498,000 498,000 654,000 654,000 Other receivables 523,000 523,000 1,360,000 1,360,000 Accrued income receivable 164,000 164,000 163,000 163,000 Beneficial interest in trusts 18,257,000 18,257,000 22,636,000 22,636,000 Investments, unrestricted 54,440,000 54,440,000 51,453,000 51,453,000 Investments, temporarily restricted -- -- 69,000 69,000 Investments, permanently restricted 2,974,000 2,974,000 2,974,000 2,974,000 Assets whose use is limited 50,550,000 50,550,000 11,108,000 11,108,000 Financial liabilities Bonds and notes payable 107,868,000 110,822,000 63,022,000 68,470,000

13. Endowment (Samaritan) Program

In August 2008, the Financial Accounting Standards Board issued authoritative guidance regarding “Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act, and Enhanced Disclosures for All Endowment Funds”. The authoritative guidance provides guidance on the net asset classification of donor-restricted endowment funds for a nonprofit organization that is subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA). The authoritative guidance also required additional disclosures about an organization’s endowment funds (both donor-restricted endowment funds and board-designated endowment funds) whether or not the organization is subject to UPMIFA. The Commonwealth of Virginia enacted UPMIFA effective July 1, 2008, the provisions of which apply to endowment funds existing on or established after that date. Management has determined that all of the Organization’s permanently restricted net assets meet the definition of endowment funds under UPMIFA.

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NOTES TO COMBINED FINANCIAL STATEMENTS 13. Endowment (Samaritan) Program (Continued)

Donor-designated endowments (UPMIFA state)

The Organization’s endowment consists of one fund established to partially defray the cost of administering care to those persons who are otherwise unable to provide such monies on their own behalf (also called the Samaritan Program). The Board of Trustees of the Organization has interpreted the Uniform Prudent Management of Institutional Funds Act (UPMIFA) as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Organization classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets, including investment income and realized and unrealized gains/losses, until those amounts are appropriated for expenditure by the Organization in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the Organization considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) the duration and preservation of the various funds, (2) the purposes of the donor-restricted endowment funds, (3) general economic conditions, (4) the possible effect of inflation and deflation, (5) the expected total return from income and the appreciation of investments, (6) other resources of the Organization, and (7) the Organization’s investment policies.

Investment return objectives, risk parameters, and strategies

The Organization’s investment philosophy is to obtain, over a period of years, a satisfactory level of current investment income and a reasonable increase in the value of the principal through market appreciation consistent with the preservation of the principal. In measuring the performance of the funds to the capital markets, the goal is to generate an annualized return of 30 basis points over a composite benchmark weighted twenty-five percent (25%) to the S&P 500 Common Stock Index and seventy-five percent (75%) to the Barclays Capital Aggregate Bond Index, at a risk level within one hundred twenty percent (120%) of the composite benchmark, over each three-to-five-year period. Performance is measured relative to peers by ensuring the invested funds are within the top-half of a blended universe weighted twenty-five percent (25%) equity funds and seventy-five percent (75%) fixed income funds over each three-to-five year period.

The assets of the Endowment (Samaritan) Program are included in the accompanying combined balance sheets as follows:

May 31, 2018

Unrestricted

Temporarily Restricted

Permanently

Restricted

Total Net Endowment

Assets Cash and cash equivalents $ -- $ 10,162 $ -- $ 10,162 Investments -- -- 2,973,938 2,973,938 Beneficial interest in trusts -- -- 243,395 243,395 Total $ -- $ 10,162 $ 3,217,333 $ 3,227,495

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May 31, 2017

Unrestricted


Permanently

Restricted

Total Net Endowment

Assets Investments $ -- $ 69,486 $ 2,973,938 $ 3,043,424 Beneficial interest in trusts -- -- 209,751 209,751 Total $ -- $ 69,486 $ 3,183,689 $ 3,253,175

Hermitage Capital and Reserve Corporation had no endowment funds for fiscal 2018 or fiscal 2017. Endowment (Samaritan) net asset composition by type of fund as of May 31, 2018 and 2017 are as follows:


Unrestricted Temporarily Restricted

Permanently Restricted

Total

Donor-restricted endowment funds $ -- $ -- $ 3,217,333 $ 3,217,333




Total

Donor-restricted endowment funds $ -- $ 69,486 $ 3,183,689 $ 3,253,175




Total

Donor-restricted endowment funds $ -- $ 10,162 $ -- $ 10,162




Total

Donor-restricted endowment funds $ -- $ -- $ -- $ --

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Changes in endowment (Samaritan) net assets as of May 31, 2018 and 2017 are as follows:




Total

Net assets, June 1, 2017 $ -- $ 69,486 $ 3,183,689 $ 3,253,175 Contributions -- 227,691 -- 227,691 Present value adjustment on beneficial interest in trusts

--

--

33,644

33,644

Investment income -- 4,431 -- 4,431 Net realized loss on investments -- (2,070) -- (2,070) Net unrealized loss on investments -- (3,234) -- (3,234) Benevolent care (482,958) (296,304) -- (779,262) Unrestricted assets used for Benevolent Care 482,958 -- -- 482,958 Net assets, May 31, 2018 $ -- $ -- $ 3,217,333 $ 3,217,333




Total

Net assets, June 1, 2017 $ -- $ -- $ -- $ -- Contributions -- 10,162 -- 10,162 Net assets, May 31, 2018 $ -- $ 10,162 $ -- $ 10,162




Total

Net assets, June 1, 2016 $ -- $ 730,133 $ 3,172,170 $ 3,902,303 Contributions -- 247,867 -- 247,867 Present value adjustment on beneficial interest in trusts

--

--

11,519

11,519

Investment income -- 53,912 -- 53,912 Net realized loss on investments -- (8,429) -- (8,429) Net unrealized loss on investments -- (28,236) -- (28,236) Fund expenses -- (3,049) -- (3,049) Benevolent care -- (922,712) -- (922,712) Net assets, May 31, 2017 $ -- $ 69,486 $ 3,183,689 $ 3,253,175




Total

Net assets, June 1, 2016 $ -- $ -- $ -- $ -- Contributions -- 12,730 -- 12,730 Benevolent care (101,168) (12,730) -- (113,898) Unrestricted assets used for Benevolent Care 101,168 -- -- 101,168 Net assets, May 31, 2017 $ -- $ -- $ -- $ --

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14. Functional Expenses

Operating expenses for Pinnacle Living and WindsorMeade are classified by function. HCRC had no operating expenses for fiscal 2018 and 2017.

Year Ending May 31, 2018 Pinnacle Living

Functional Expense

Program Services

Management & General

Fundraising

Total

Salaries $ 26,616,753 $ 3,689,545 $ 84,069 $ 30,390,367 Defined contribution plan contributions 1,289,498 269,326 -- 1,558,824 Employee benefits 2,622,312 362,172 -- 2,984,484 Payroll taxes 1,955,762 218,334 5,619 2,179,715 Total salaries and related expenses 32,484,325 4,539,377 89,688 37,113,390 Advertising 1,163,284 4,274 8,329 1,175,887 Conferences and education 61,308 80,075 1,498 142,881 Consultant services 722,357 1,144,607 108,312 1,975,276 Contract services 1,868,595 388,598 -- 2,257,193 Depreciation 6,433,453 -- -- 6,433,453 Designated funds 245,457 -- -- 245,457 Dietary – food costs 3,587,116 2,794 -- 3,589,910 Dietary – non-edible 366,452 -- -- 366,452 Dues and subscriptions 34,209 93,860 -- 128,069 Information technology 1,198,347 34,189 -- 1,232,536 Insurance 976,693 51,245 -- 1,027,938 Licenses and fees 21,009 14,194 -- 35,203 Maintenance and repair 1,905,954 24,264 177 1,930,395 Medical services 155,148 -- -- 155,148 Medical supplies 132,765 -- -- 132,765 Minor equipment 195,153 8,925 -- 204,078 Miscellaneous 41,706 16,013 890 58,609 Person centered initiative 7,659 14,103 -- 21,762 Postage and shipping 3,777 34,231 2,033 40,041 Recruitment and retention 67,779 169,677 -- 237,456 Rent 42,203 165,469 -- 207,672 Residence renovations 439,822 290 -- 440,112 Resident services 303,184 2,926 -- 306,110 Supplies 535,577 65,714 45 601,336 Taxes 9,707 -- -- 9,707 Travel, meals and lodging 39,556 91,158 7,588 138,302 Utility costs 3,242,960 34,327 200 3,277,487 Total operating expenses $ 56,285,555 $ 6,980,310 $ 218,760 $ 63,484,625

44

NOTES TO COMBINED FINANCIAL STATEMENTS 14. Functional Expenses (Continued)

Year Ending May 31, 2018 Year Ending May 31, 2018 WindsorMeade Combined

Program Services


Fundraising

Total

Eliminations

Combined Total

$ 4,513,156 $ 482,034 $ -- $ 4,995,190 $ -- $ 35,385,557 162,255 31,243 -- 193,498 -- 1,752,322 409,088 40,652 -- 449,740 -- 3,434,224 324,976 28,912 -- 353,888 -- 2,533,603 5,409,475 582,841 -- 5,992,316 -- 43,105,706 290,274 2,123 -- 292,397 -- 1,468,284 25,440 9,897 -- 35,337 -- 178,218 45,117 275,439 -- 320,556 -- 2,295,832 1,134,756 474,046 -- 1,608,802 (442,395) 3,423,600 3,394,904 -- -- 3,394,904 -- 9,828,357 -- -- -- -- -- 245,457 815,932 19,543 -- 835,475 -- 4,425,385 74,492 -- -- 74,492 -- 440,944 9,092 21,830 -- 30,922 -- 158,991 149,506 2,301 -- 151,807 -- 1,384,343 216,407 17,095 -- 233,502 -- 1,261,440 5,415 1,057 -- 6,472 -- 41,675 584,709 13,475 -- 598,184 -- 2,528,579 213,902 -- -- 213,902 -- 369,050 11,049 -- -- 11,049 -- 143,814 110,616 1,066 -- 111,682 -- 315,760 -- 6,744 -- 6,744 -- 65,353 -- 3,379 -- 3,379 -- 25,141 6,556 2,709 -- 9,265 -- 49,306 68,258 1,529 -- 69,787 -- 307,243 5,859 -- -- 5,859 -- 213,531 30,941 -- -- 30,941 -- 471,053 94,424 329 -- 94,753 -- 400,863 185,998 11,848 -- 197,846 -- 799,182 650,155 -- -- 650,155 -- 659,862 16,803 9,119 -- 25,922 -- 164,224 763,919 -- -- 763,919 -- 4,041,406 $ 14,313,999 $ 1,456,370 $ -- $ 15,770,369 $ (442,395) $ 78,812,599

45


Year Ending May 31, 2017 Pinnacle Living

Functional Expense

Program Services


Fundraising

Total

Salaries $ 25,171,954 $ 3,372,409 $ -- $ 28,544,363 Defined contribution plan contributions 1,083,493 238,741 -- 1,322,234 Employee benefits 2,374,986 256,324 -- 2,631,310 Payroll taxes 1,847,123 199,079 -- 2,046,202 Total salaries and related expenses 30,477,556 4,066,553 -- 34,544,109 Advertising 926,848 4,246 12,579 943,673 Conferences and education 56,347 51,557 80 107,984 Consultant services 429,797 1,178,486 -- 1,608,283 Contract services 1,939,336 332,659 -- 2,271,995 Depreciation 6,239,282 -- -- 6,239,282 Designated funds 153,947 -- -- 153,947 Dietary – food costs 3,297,568 1,021 -- 3,298,589 Dietary – non-edible 329,156 475 -- 329,631 Dues and subscriptions 19,565 51,814 150 71,529 Information technology 976,608 8,345 3,874 988,827 Insurance 986,498 66,730 -- 1,053,228 Licenses and fees 25,767 27,181 -- 52,948 Maintenance and repair 1,636,842 25,658 -- 1,662,500 Medical services 155,662 -- -- 155,662 Medical supplies 116,049 956 -- 117,005 Minor equipment 240,357 54,835 2,092 297,284 Person centered initiative 9,119 116,284 -- 125,403 Postage and shipping 2,377 31,804 222 34,403 Recruitment and retention 37,355 214,432 -- 251,787 Rent 33,918 178,765 -- 212,683 Residence renovations 434,035 -- -- 434,035 Resident services 189,776 -- -- 189,776 Supplies 528,913 72,909 236 602,058 Taxes 11,846 4,737 -- 16,583 Travel, meals and lodging 26,774 55,252 2,914 84,940 Utility costs 2,914,848 29,329 -- 2,944,177 Total operating expenses $ 52,196,146 $ 6,574,028 $ 22,147 $ 58,792,321

46


Year Ending May 31, 2017 Year Ending May 31, 2017 WindsorMeade Combined

Program Services


Fundraising

Total

Eliminations

Combined Total

$ 4,058,812 $ 414,812 $ -- $ 4,473,624 $ -- $ 33,017,987 174,924 17,951 -- 192,875 -- 1,515,109 384,870 66,739 -- 451,609 -- 3,082,919 298,163 22,864 -- 321,027 -- 2,367,229 4,916,769 522,366 -- 5,439,135 -- 39,983,244 150,389 332 -- 150,721 -- 1,094,394 21,934 9,921 -- 31,855 -- 139,839 34,113 434,782 -- 468,895 -- 2,077,178 982,929 325,057 -- 1,307,986 (297,631) 3,282,350 3,364,033 -- -- 3,364,033 -- 9,603,315 3,948 -- -- 3,948 -- 157,895 753,275 12,730 -- 766,005 -- 4,064,594 64,682 -- -- 64,682 -- 394,313 9,250 20,435 -- 29,685 -- 101,214 136,228 48 -- 136,276 -- 1,125,103 256,160 16,597 -- 272,757 -- 1,325,985 2,888 1,806 -- 4,694 -- 57,642 405,620 5,800 -- 411,420 -- 2,073,920 163,120 -- -- 163,120 -- 318,782 13,406 -- -- 13,406 -- 130,411 69,570 2,256 -- 71,826 -- 369,110 -- 6,732 -- 6,732 -- 132,135 8,301 2,518 -- 10,819 -- 45,222 4,454 35,347 -- 39,801 -- 291,588 4,674 75 -- 4,749 -- 217,432 28,186 -- -- 28,186 -- 462,221 45,385 -- -- 45,385 -- 235,161 146,044 10,670 -- 156,714 -- 758,772 678,698 -- -- 678,698 -- 695,281 8,877 6,435 -- 15,312 -- 100,252 617,884 -- -- 617,884 -- 3,562,061 $ 12,890,817 $ 1,413,907 $ -- $ 14,304,724 $ (297,631) $ 72,799,414

47


15. Subsequent Events

Management has evaluated subsequent events through September 7, 2018, the date which the financial statements were available for issue.

48

INDEPENDENT AUDITOR’S REPORT ON THE SUPPLEMENTARY INFORMATION Board of Directors Pinnacle Living Richmond, Virginia We have audited the combined financial statements of Pinnacle Living, WindsorMeade, and Hermitage Capital and Reserve Corporation as of and for the years ended May 31, 2018 and 2017, and have issued our report thereon, which contains an unmodified opinion on those financial statements. See page 1. Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The supplementary information is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information on pages 49 through 60 has been subjected to the auditing procedures applied in the audits of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. The information on pages 63 through 85 has not been subjected to the auditing procedures applied in the audits of the financial statements and, accordingly, we express no opinion on it.

Mitchell Wiggins Richmond, Virginia September 7, 2018

49

PINNACLE LIVING SCHEDULE OF COMBINING INFORMATION COMBINING BALANCE SHEET MAY 31, 2018

Pinnacle Living WindsorMeade ASSETS

Unrestricted



Unrestricted



Current Assets Cash and cash equivalents $ 7,054,280 $ -- $ -- $ 7,888,381 $ -- $ -- Cash and cash equivalents, temporarily restricted -- 281,367 -- -- 30,330 -- Total cash and cash equivalents 7,054,280 281,367 -- 7,888,381 30,330 -- Accounts receivable, residents, less allowance for uncollectible accounts $3,886,778

301,941

--

--

196,328

--

--

Other receivables 523,376 -- -- -- -- -- Prepaid expenses 212,728 -- -- 55,732 -- -- Accrued income receivable 163,582 -- -- -- -- -- Due from affiliate – WindsorMeade 764,609 -- -- -- -- -- Assets whose use is limited 3,045,521 -- -- 1,582,693 -- -- Total current assets 12,066,037 281,367 -- 9,723,134 30,330 -- Beneficial interest in trusts, permanently restricted -- -- 18,257,029 -- -- -- Investments, unrestricted 47,733,319 -- -- -- -- -- Investments, affiliate – HCRC 7,350,836 -- -- -- -- -- Investments, affiliate - WindsorMeade 8,037,897 -- -- -- -- -- Investments, permanently restricted -- -- 2,973,938 -- -- -- Assets whose use is limited 41,953,758 -- -- 3,967,678 -- -- Other assets 165,913 -- -- -- -- -- Property and equipment, net 91,617,429 -- -- 95,276,297 -- -- Total assets $ 208,925,189 $ 281,367 $ 21,230,967 $ 108,967,109 $ 30,330 $ -- LIABILITIES AND NET ASSETS Liabilities Current Liabilities Accounts payable $ 5,405,456 $ -- $ -- $ 435,277 $ -- $ -- Accrued expenses 5,808,931 -- -- 1,914,683 -- -- Resident refunds payable 16,038 -- -- -- -- -- Deposits, prospective residents 390,989 -- -- 121,022 -- -- Due to affiliate – Pinnacle Living -- -- -- 764,609 -- -- Bonds payable 1,865,000 -- -- 315,000 -- -- Other current liabilities 386,523 -- -- 298 -- -- Total current liabilities 13,872,937 -- -- 3,550,889 -- -- Resident refunds payable -- -- -- 4,239,071 -- -- Deposits, perspective residents 1,715,431 -- -- 165,000 -- -- Notes payable -- -- -- 232,957 -- -- Bonds payable, net of OID $7,880,701 and bond issuance costs $1,694,199

76,807,982

--

--

36,399,851

--

--

Refundable fees 2,773,668 -- -- 55,253,429 -- -- Deferred revenue, entrance fees 68,085,052 -- -- 19,352,344 -- -- Other liabilities 45,624 -- -- -- -- -- Total liabilities 163,300,694 -- -- 119,193,541 -- -- Net Assets Unrestricted Operations 45,624,495 -- -- (10,226,432) -- -- Board designated -- -- -- -- -- -- Temporarily restricted -- 281,367 -- -- 30,330 -- Permanently restricted -- -- 21,230,967 -- -- -- Total net assets 45,624,495 281,367 21,230,967 (10,226,432) 30,330 -- Total liabilities and net assets $ 208,925,189 $ 281,367 $ 21,230,967 $ 108,967,109 $ 30,330 $ --

50

Hermitage Capital and Reserve Corporation

Unrestricted



Total

Eliminations

Total

$ 817,941 $ -- $ -- $ 15,760,602 $ -- $ 15,760,602 -- -- -- 311,697 -- 311,697 817,941 -- -- 16,072,299 -- 16,072,299

--

--

--

498,269

--

498,269 -- -- -- 523,376 -- 523,376 -- -- -- 268,460 -- 268,460 -- -- -- 163,582 -- 163,582 -- -- -- 764,609 (764,609) -- -- -- -- 4,628,214 -- 4,628,214 817,941 -- -- 22,918,809 (764,609) 22,154,200 -- -- -- 18,257,029 -- 18,257,029 6,706,218 -- -- 54,439,537 -- 54,439,537 -- -- -- 7,350,836 (7,350,836) -- -- -- -- 8,037,897 (8,037,897) -- -- -- -- 2,973,938 -- 2,973,938 -- -- -- 45,921,436 -- 45,921,436 -- -- -- 165,913 -- 165,913 -- -- -- 186,893,726 -- 186,893,726 $ 7,524,159 $ -- $ -- $ 346,959,121 $ (16,153,342) $ 330,805,779 $ -- $ -- $ -- $ 5,840,733 $ -- $ 5,840,733 -- -- -- 7,723,614 -- 7,723,614 -- -- -- 16,038 -- 16,038 -- -- -- 512,011 -- 512,011 -- -- -- 764,609 (764,609) -- -- -- -- 2,180,000 (125,000) 2,055,000 -- -- -- 386,821 -- 386,821 -- -- -- 17,423,826 (889,609) 16,534,217 -- -- -- 4,239,071 -- 4,239,071 -- -- -- 1,880,431 -- 1,880,431 -- -- -- 232,957 -- 232,957

--

--

--

113,207,833

(7,627,302)

105,580,531 -- -- -- 58,027,097 -- 58,027,097 -- -- -- 87,437,396 -- 87,437,396 -- -- -- 45,624 -- 45,624 -- -- -- 282,494,235 (8,516,911) 273,977,324 7,524,159 -- -- 42,922,222 (7,636,431) 35,285,791 -- -- -- -- -- -- -- -- -- 311,697 -- 311,697 -- -- -- 21,230,967 -- 21,230,967 7,524,159 -- -- 64,464,886 (7,636,431) 56,828,455 $ 7,524,159 $ -- $ -- $ 346,959,121 $ (16,153,342) $ 330,805,779

51

PINNACLE LIVING SCHEDULE OF COMBINING INFORMATION COMBINING BALANCE SHEET MAY 31, 2017

Pinnacle Living WindsorMeade ASSETS

Unrestricted



Unrestricted



Current Assets Cash and cash equivalents $ 6,463,299 $ -- $ -- $ 9,694,803 $ -- $ -- Cash and cash equivalents, temporarily restricted -- 291,128 -- -- 17,791 -- Total cash and cash equivalents 6,463,299 291,128 -- 9,694,803 17,791 -- Accounts receivable, residents, less allowance for uncollectible accounts $3,797,282

504,941

--

--

148,833

--

--

Other receivables 523,445 -- -- 836,850 -- -- Prepaid expenses 312,372 -- -- 42,414 -- -- Accrued income receivable 162,746 -- -- -- -- -- Due from affiliate – WindsorMeade 24,639 -- -- -- -- -- Assets whose use is limited 2,866,439 -- -- 1,644,697 -- -- Total current assets 10,857,881 291,128 -- 12,367,597 17,791 -- Beneficial interest in trusts, permanently restricted -- -- 22,636,423 -- -- -- Investments, unrestricted 44,783,035 -- -- -- -- -- Investments, affiliate – HCRC 7,350,836 -- -- -- -- -- Investments, affiliate - WindsorMeade 8,197,380 -- -- -- -- -- Investments, temporarily restricted -- 69,486 -- -- -- -- Investments, permanently restricted -- -- 2,973,938 -- -- -- Assets whose use is limited 3,410,419 -- -- 3,186,727 -- -- Other assets 194,949 -- -- -- -- -- Property and equipment, net 78,529,347 -- -- 95,270,996 -- -- Total assets $ 153,323,847 $ 360,614 $ 25,610,361 $ 110,825,320 $ 17,791 $ -- LIABILITIES AND NET ASSETS Liabilities Current Liabilities Accounts payable $ 2,369,536 $ -- $ -- $ 653,111 $ -- $ -- Accrued expenses 3,765,052 -- -- 1,541,100 -- -- Resident refunds payable 23,415 -- -- -- -- -- Deposits, prospective residents 718,857 -- -- 294,413 -- -- Due to affiliate – Pinnacle Living -- -- -- 24,639 -- -- Bonds payable 1,815,000 -- -- 215,160 -- -- Total current liabilities 8,691,860 -- -- 2,728,423 -- -- Resident refunds payable -- -- -- 5,250,403 -- -- Deposits, perspective residents 516,000 -- -- 141,180 -- -- Notes payable -- -- -- 55,600 -- -- Bonds payable, net of OID $10,716,982 and bond issuance costs $1,099,134

32,572,601

--

--

36,168,916

--

--

Refundable fees 3,468,892 -- -- 55,452,940 -- -- Deferred revenue, entrance fees 63,075,057 -- -- 17,540,922 -- -- Other liabilities 36,700 -- -- 198,353 -- -- Total liabilities 108,361,110 -- -- 117,536,737 -- -- Net Assets Unrestricted Operations 44,913,407 -- -- (6,711,417) -- -- Board designated 49,330 -- -- -- -- -- Temporarily restricted -- 360,614 -- -- 17,791 -- Permanently restricted -- -- 25,610,361 -- -- -- Total net assets 44,962,737 360,614 25,610,361 (6,711,417) 17,791 -- Total liabilities and net assets $ 153,323,847 $ 360,614 $ 25,610,361 $ 110,825,320 $ 17,791 $ --

52


Unrestricted



Total

Eliminations

Total

$ 818,041 $ -- $ -- $ 16,976,143 $ -- $ 16,976,143 -- -- -- 308,919 -- 308,919 818,041 -- -- 17,285,062 -- 17,285,062

--

--

--

653,774

--

653,774 -- -- -- 1,360,295 -- 1,360,295 -- -- -- 354,786 -- 354,786 -- -- -- 162,746 -- 162,746 -- -- -- 24,639 (24,639) -- -- -- -- 4,511,136 -- 4,511,136 818,041 -- -- 24,352,438 (24,639) 24,327,799 -- -- -- 22,636,423 -- 22,636,423 6,669,555 -- -- 51,452,590 -- 51,452,590 -- -- -- 7,350,836 (7,350,836) -- -- -- -- 8,197,380 (8,197,380) -- -- -- -- 69,486 -- 69,486 -- -- -- 2,973,938 -- 2,973,938 -- -- -- 6,597,146 -- 6,597,146 -- -- -- 194,949 -- 194,949 -- -- -- 173,800,343 -- 173,800,343 $ 7,487,596 $ -- $ -- $ 297,625,529 $ (15,572,855) $ 282,052,674 $ -- $ -- $ -- $ 3,022,647 $ -- $ 3,022,647 -- -- -- 5,306,152 -- 5,306,152 -- -- -- 23,415 -- 23,415 -- -- -- 1,013,270 -- 1,013,270 -- -- -- 24,639 (24,639) -- -- -- -- 2,030,160 (120,000) 1,910,160 -- -- -- 11,420,283 (144,639) 11,275,644 -- -- -- 5,250,403 -- 5,250,403 -- -- -- 657,180 -- 657,180 -- -- -- 55,600 -- 55,600

--

--

--

68,741,517

(7,685,198)

61,056,319 -- -- -- 58,921,832 -- 58,921,832 -- -- -- 80,615,979 -- 80,615,979 -- -- -- 235,053 -- 235,053 -- -- -- 225,897,847 (7,829,837) 218,068,010 7,487,596 -- -- 45,689,586 (7,743,018) 37,946,568 -- -- -- 49,330 -- 49,330 -- -- -- 378,405 -- 378,405 -- -- -- 25,610,361 -- 25,610,361 7,487,596 -- -- 71,727,682 (7,743,018) 63,984,664 $ 7,487,596 $ -- $ -- $ 297,625,529 $ (15,572,855) $ 282,052,674

53

PINNACLE LIVING SCHEDULE OF COMBINING INFORMATION COMBINING STATEMENT OF ACTIVITIES YEAR ENDED MAY 31, 2018

Pinnacle Living WindsorMeade

Unrestricted



Unrestricted



Operating Revenues and Support Residents’ fees $ 50,254,750 $ -- $ -- $ 12,305,178 $ -- $ -- Benevolent care (779,262) -- -- -- -- -- Amortization of deferred revenue from entrance fees

8,907,414

--

--

2,170,843

--

--

Ancillary service revenue, net 163,682 -- -- 132,210 -- -- Other operating revenue 1,690,224 -- -- 270,816 -- -- Net assets released from restrictions 306,065 (306,065) -- -- -- -- Total operating revenues and support 60,542,873 (306,065) -- 14,879,047 -- -- Operating Expenses Administration 9,124,299 -- -- 1,889,463 -- -- Marketing 2,631,988 -- -- 609,280 -- -- General overhead 1,037,645 -- -- 882,802 -- -- Depreciation 6,433,453 -- -- 3,394,904 -- -- Dining 11,227,238 -- -- 2,299,201 -- -- Resident services 3,132,581 -- -- 608,865 -- -- Designated funds 245,456 -- -- -- -- -- Building and grounds 9,807,314 -- -- 2,622,179 -- -- Housekeeping 3,511,711 -- -- 542,266 -- -- Nursing 12,617,884 -- -- 517,463 -- -- Households / Neighborhoods 3,715,056 -- -- 2,403,946 -- -- Total operating expenses 63,484,625 -- -- 15,770,369 -- -- Change in net assets from operations (2,941,752) (306,065) -- (891,322) -- -- Other Non-operating Changes Bequests 1,761,261 -- -- -- -- -- Trusts and legacies 801,735 -- -- -- -- -- Present value change in trusts -- -- (4,379,394) -- -- -- Contributions, Samaritan Program -- 227,691 -- -- 10,162 -- Contributions, designated funds 235,696 -- -- -- 2,377 -- Contributions, other 10,500 -- -- -- -- -- Investment income 1,462,632 4,431 -- 24,269 -- -- Net realized gains (losses) on investments 1,210,209 (2,070) -- -- -- -- Net unrealized gains (losses) on investments 403,818 (3,234) -- -- -- -- Loss on disposal of property and equipment (96,720) -- -- -- -- -- Interest expense (2,060,126) -- -- (2,630,086) -- -- Other non-operating charges and fees (125,495) -- -- (17,876) -- -- Total non-operating changes 3,603,510 226,818 (4,379,394) (2,623,693) 12,539 -- Change in net assets 661,758 (79,247) (4,379,394) (3,515,015) 12,539 -- Net assets at the beginning of the year 44,962,737 360,614 25,610,361 (6,711,417) 17,791 -- Net assets as the end of the year $ 45,624,495 $ 281,367 $ 21,230,967 $ (10,226,432) $ 30,330 $ --

54


Unrestricted



Total

Eliminations

Total

$ -- $ -- $ -- $ 62,559,928 $ -- $ 62,559,928 -- -- -- (779,262) -- (779,262)

--

--

--

11,078,257

--

11,078,257 -- -- -- 295,892 -- 295,892 -- -- -- 1,961,040 (442,395) 1,518,645 -- -- -- -- -- -- -- -- -- 75,115,855 (442,395) 74,673,460 -- -- -- 11,013,762 (442,395) 10,571,367 -- -- -- 3,241,268 -- 3,241,268 -- -- -- 1,920,447 -- 1,920,447 -- -- -- 9,828,357 -- 9,828,357 -- -- -- 13,526,439 -- 13,526,439 -- -- -- 3,741,446 -- 3,741,446 -- -- -- 245,456 -- 245,456 -- -- -- 12,429,493 -- 12,429,493 -- -- -- 4,053,977 -- 4,053,977 -- -- -- 13,135,347 -- 13,135,347 -- -- -- 6,119,002 -- 6,119,002 -- -- -- 79,254,994 (442,395) 78,812,599 -- -- -- (4,139,139) -- (4,139,139) -- -- -- 1,761,261 -- 1,761,261 -- -- -- 801,735 -- 801,735 -- -- -- (4,379,394) -- (4,379,394) -- -- -- 237,853 -- 237,853 -- -- -- 238,073 -- 238,073 -- -- -- 10,500 -- 10,500 177,102 -- -- 1,668,434 (467,648) 1,200,786 -- -- -- 1,208,139 -- 1,208,139 (140,438) -- -- 260,146 39,482 299,628 -- -- -- (96,720) -- (96,720) -- -- -- (4,690,212) 534,753 (4,155,459) (101) -- -- (143,472) -- (143,472) 36,563 -- -- (3,123,657) 106,587 (3,017,070) 36,563 -- -- (7,262,796) 106,587 (7,156,209) 7,487,596 -- -- 71,727,682 (7,743,018) 63,984,664 $ 7,524,159 $ -- $ -- $ 64,464,886 $ (7,636,431) $ 56,828,455

55

PINNACLE LIVING SCHEDULE OF COMBINING INFORMATION COMBINING STATEMENT OF ACTIVITIES YEAR ENDED MAY 31, 2017

Pinnacle Living WindsorMeade

Unrestricted



Unrestricted



Operating Revenues and Support Residents’ fees $ 49,377,890 $ -- $ -- $ 11,979,891 $ -- $ -- Benevolent care (922,712) -- -- (113,898) -- -- Amortization of deferred revenue from entrance fees

9,485,692

--

--

2,635,945

--

--

Ancillary service revenue, net 182,197 -- -- 134,717 -- -- Other operating revenue 1,294,457 -- -- 245,923 -- -- Net assets released from restrictions 925,759 (925,759) -- 12,730 (12,730) -- Total operating revenues and support 60,343,283 (925,759) -- 14,895,308 (12,730) -- Operating Expenses Administration 7,968,019 -- -- 1,925,691 -- -- Marketing 2,301,022 -- -- 436,412 -- -- General overhead 1,065,073 -- -- 934,858 -- -- Depreciation 6,238,281 -- -- 3,364,033 -- -- Dining 10,813,667 -- -- 2,502,905 -- -- Resident services 2,958,312 -- -- 688,158 -- -- Designated funds 153,947 -- -- 3,948 -- -- Building and grounds 8,726,956 -- -- 2,215,147 -- -- Housekeeping 3,513,802 -- -- 551,018 -- -- Nursing 14,485,167 -- -- 1,682,554 -- -- Households / Neighborhoods 568,075 -- -- -- -- -- Total operating expenses 58,792,321 -- -- 14,304,724 -- -- Change in net assets from operations 1,550,962 (925,759) -- 590,584 (12,730) -- Other Non-operating Changes Bequests 158,397 -- -- -- -- -- Trusts and legacies 829,665 -- -- -- -- -- Present value change in trusts -- -- 3,105,216 -- -- -- Contributions, Samaritan Program -- 247,867 -- -- 12,730 -- Contributions, designated funds 153,947 58,278 -- 3,948 1,031 -- Contributions, other 10,972 -- -- 174 -- -- Investment income 1,423,441 53,912 -- 18,707 -- -- Net realized gains (losses) on investments 554,355 (8,429) -- -- -- -- Net unrealized gains (losses) on investments 1,686,499 (28,236) -- -- -- -- Loss on disposal of property and equipment (2,043) -- -- -- -- -- Interest expense (1,318,164) -- -- (3,014,625) -- -- Other non-operating charges and fees (62,821) -- -- (74,118) -- -- Total non-operating changes 3,434,248 323,392 3,105,216 (3,065,914) 13,761 -- Change in net assets 4,985,210 (602,367) 3,105,216 (2,475,330) 1,031 -- Net assets at the beginning of the year 39,977,527 962,981 22,505,145 (4,236,087) 16,760 -- Net assets as the end of the year $ 44,962,737 $ 360,614 $ 25,610,361 $ (6,711,417) $ 17,791 $ --

56


Unrestricted



Total

Eliminations

Total

$ -- $ -- $ -- $ 61,357,781 $ -- $ 61,357,781 -- -- -- (1,036,610) -- (1,036,610)

--

--

--

12,121,637

--

12,121,637 -- -- -- 316,914 -- 316,914 -- -- -- 1,540,380 (297,631) 1,242,749 -- -- -- -- -- -- -- -- -- 74,300,102 (297,631) 74,002,471 -- -- -- 9,893,710 (297,631) 9,596,079 -- -- -- 2,737,434 -- 2,737,434 -- -- -- 1,999,931 -- 1,999,931 -- -- -- 9,602,314 -- 9,602,314 -- -- -- 13,316,572 -- 13,316,572 -- -- -- 3,646,470 -- 3,646,470 -- -- -- 157,895 -- 157,895 -- -- -- 10,942,103 -- 10,942,103 -- -- -- 4,064,820 -- 4,064,820 -- -- -- 16,167,721 -- 16,167,721 -- -- -- 568,075 -- 568,075 -- -- -- 73,097,045 (297,631) 72,799,414 -- -- -- 1,203,057 -- 1,203,057 -- -- -- 158,397 -- 158,397 -- -- -- 829,665 -- 829,665 -- -- -- 3,105,216 -- 3,105,216 -- -- -- 260,597 -- 260,597 -- -- -- 217,204 -- 217,204 -- -- -- 11,146 -- 11,146 168,927 -- -- 1,664,987 (470,000) 1,194,987 -- -- -- 545,926 -- 545,926 (41,560) -- -- 1,616,703 (170,931) 1,445,772 -- -- -- (2,043) -- (2,043) -- -- -- (4,332,789) 541,535 (3,791,254) (137) -- -- (137,076) -- (137,076) 127,230 -- -- 3,937,933 (99,396) 3,838,537 127,230 -- -- 5,140,990 (99,396) 5,041,594 7,360,366 -- -- 66,586,692 (7,643,622) 58,943,070 $ 7,487,596 $ -- $ -- $ 71,727,682 $ (7,743,018) $ 63,984,664

57

PINNACLE LIVING SCHEDULE OF COMBINING INFORMATION COMBINING STATEMENT OF CASH FLOWS YEAR ENDED MAY 31, 2018

Pinnacle Living WindsorMeade Operating Activities Change in net assets $ (3,796,883) $ (3,502,476) Adjustments to reconcile change in net assets to net cash provided by operating activities

Depreciation 6,433,453 3,394,904 Amortization of bond issuance costs 425,439 8,527 Amortization of deferred revenue from entrance fees (8,907,414) (2,170,843) Amortization of original issue discount (premium) on bonds payable (81,505) 537,408 Realized gains on investments (1,208,139) -- Unrealized (gains) losses on investments (400,584) -- Loss on sale or disposal of property and equipment 96,720 -- Proceeds after first generation entrance fees 14,362,790 8,168,700 Refunds of entrance fees (1,140,606) (4,333,652) Changes in operating assets Accounts receivable, residents 203,000 (47,495) Other receivables 69 -- Prepaid expenses 99,644 (13,318) Due from affiliate - WindsorMeade (739,970) -- Beneficial interest in trusts 4,379,394 -- Other assets 29,036 -- Changes in operating liabilities Accounts payable 3,085,248 (217,834) Accrued expenses 2,043,879 373,583 Resident refunds payable (7,377) (226,775) Deposits, prospective members 871,563 (149,571) Due to affiliate – Pinnacle Living -- 739,970 Other liabilities 346,117 (198,055) Net cash provided by operating activities 16,093,874 2,363,073 Investing Activities Proceeds from sales of investment securities 18,191,569 -- Purchase of investments (60,262,830) (718,948) Withdrawal from investments 2,235,415 -- Proceeds from the sale of property and equipment 468,668 -- Purchase of property and equipment – Cedarfield and WindsorMeade expansions (13,390,107) (2,214,277) Purchase of property and equipment – capitalized interest (549,565) (385,331) Purchase of property and equipment (6,147,251) (800,597) Net cash used in investing activities (59,454,101) (4,119,153) Financing Activities Issuance costs on debt (1,029,031) -- Original issue premium 3,075,180 -- Principal payments on 2012 senior bonds (1,815,000) -- Principal payments on 2017A and 2017B senior bonds (15,111,491) -- Principal payments on 2013A senior bonds -- (95,160) Principal payments on 2013C senior bonds -- (120,000) Issuance of debt on the bank note -- 177,357 Issuance of debt on 2017A and 2017B senior bonds 4,111,789 -- Issuance of debt on 2017C senior bonds 54,710,000 -- Net cash provided by (used in) financing activities 43,941,447 (37,803) Net change in cash and cash equivalents 581,220 (1,793,883) Cash and cash equivalents, beginning 6,754,427 9,712,594 Cash and cash equivalents, ending $ 7,335,647 $ 7,918,711 Supplemental disclosure of cash flow information, cash payments for interest, net of amounts capitalized

$

577,377

$

2,078,889

58

HCRC Total Eliminations Total $ 36,563 $ (7,262,796) $ 106,587 $ (7,156,209)

-- 9,828,357 -- 9,828,357 -- 433,966 -- 433,966 -- (11,078,257) -- (11,078,257) -- 455,903 (67,105) 388,798 -- (1,208,139) -- (1,208,139) 140,438 (260,146) (39,482) (299,628) -- 96,720 -- 96,720 -- 22,531,490 -- 22,531,490 -- (5,474,258) -- (5,474,258) -- 155,505 -- 155,505 -- 69 -- 69 -- 86,326 -- 86,326 -- (739,970) 739,970 -- -- 4,379,394 -- 4,379,394 -- 29,036 -- 29,036 -- 2,867,414 -- 2,867,414 -- 2,417,462 -- 2,417,462 -- (234,152) -- (234,152) 721,992 -- 721,992 -- 739,970 (739,970) -- -- 148,062 -- 148,062 177,001 18,633,948 -- 18,633,948 -- 18,191,569 -- 18,191,569 (177,101) (61,158,879) -- (61,158,879) -- 2,235,415 -- 2,235,415 -- 468,668 -- 468,668 -- (15,604,384) -- (15,604,384) -- (934,896) -- (934,896) -- (6,947,848) -- (6,947,848) (177,101) (63,750,355) -- (63,750,355) -- (1,029,031) -- (1,029,031) -- 3,075,180 -- 3,075,180 -- (1,815,000) -- (1,815,000) -- (15,111,491) -- (15,111,491) -- (95,160) -- (95,160) -- (120,000) -- (120,000) -- 177,357 -- 177,357 -- 4,111,789 -- 4,111,789 -- 54,710,000 -- 54,710,000 -- 43,903,644 -- 43,903,644 (100) (1,212,763) -- (1,212,763) 818,041 17,285,062 -- 17,285,062 $ 817,941 $ 16,072,299 $ -- $ 16,072,299 $ -- $ 2,656,266 $ -- $ 2,656,266

59

PINNACLE LIVING SCHEDULE OF COMBINING INFORMATION COMBINING STATEMENT OF CASH FLOWS YEAR ENDED MAY 31, 2017

Pinnacle Living WindsorMeade Operating Activities Change in net assets $ 7,488,059 $ (2,474,299) Adjustments to reconcile change in net assets to net cash provided by operating activities

Depreciation 6,238,281 3,364,033 Amortization of bond issuance costs 171,770 -- Amortization of deferred revenue from entrance fees (9,485,692) (2,635,945) Amortization of original issue discount (premium) on bonds payable (79,332) 544,800 Realized gains on investments (545,926) -- Unrealized (gains) losses on investments (1,658,263) -- Loss on sale or disposal of property and equipment 2,043 -- Proceeds of first generation entrance fees -- 452,905 Proceeds after first generation entrance fees 9,280,363 6,492,480 Refunds of entrance fees (512,666) (4,067,940) Changes in operating assets Accounts receivable, residents (196,656) (94,914) Other receivables (452,612) 15,877 Prepaid expenses (121,198) (18,982) Due from affiliate - WindsorMeade (24,639) -- Beneficial interest in trusts (3,105,216) -- Other assets (6,101) -- Changes in operating liabilities Accounts payable (35,932) 216,232 Accrued expenses 77,158 (22,801) Resident refunds payable (7,952) (847,005) Deposits, prospective members 167,807 (6,048) Due to affiliate – Pinnacle Living -- 24,639 Other liabilities 6,773 (130) Net cash provided by operating activities 7,200,069 942,902 Investing Activities Proceeds from sales of investment securities 10,267,653 -- Purchase of investments (11,934,374) (869,622) Withdrawal from investments 2,002,334 -- Purchase of property and equipment – Cedarfield and WindsorMeade expansions (1,854,787) (3,826,116) Purchase of property and equipment (5,651,762) (1,204,744) Net cash used in investing activities (7,170,936) (5,900,482) Financing Activities Bond issuance costs (427,006) (76,507) Principal payments on 2012 senior bonds (1,775,000) -- Principal payments on bank note (16,980,903) -- Issuance of debt on bank taxable note 8,450,375 -- Issuance of debt on 2016 and 2017 senior bonds 10,999,702 55,600 Net cash provided by (used in) financing activities 267,168 (20,907) Net change in cash and cash equivalents 296,301 (4,978,487) Cash and cash equivalents, beginning 6,458,126 14,691,081 Cash and cash equivalents, ending $ 6,754,427 $ 9,712,594 Supplemental disclosure of cash flow information, cash payments for interest $ 1,234,325 $ 2,467,961

60

HCRC Total Eliminations Total $ 127,230 $ 5,140,990 $ (99,396) $ 5,041,594

-- 9,602,314 -- 9,602,314 -- 171,770 -- 171,770 -- (12,121,637) -- (12,121,637) -- 465,468 (71,535) 393,933 -- (545,926) -- (545,926) 41,560 (1,616,703) 170,931 (1,445,772) -- 2,043 -- 2,043 -- 452,905 -- 452,905 -- 15,772,843 -- 15,772,843 -- (4,580,606) -- (4,580,606) -- (291,570) -- (291,570) -- (436,735) -- (436,735) -- (140,180) -- (140,180) -- (24,639) 24,639 -- -- (3,105,216) -- (3,105,216) -- (6,101) -- (6,101) -- 180,300 -- 180,300 -- 54,357 -- 54,357 -- (854,957) -- (854,957) -- 161,759 -- 161,759 -- 24,639 (24,639) -- -- 6,643 -- 6,643 168,790 8,311,761 -- 8,311,761 1,803,384 12,071,037 -- 12,071,037 (1,971,484) (14,775,480) -- (14,775,480) -- 2,002,334 -- 2,002,334 -- (5,680,903) -- (5,680,903) -- (6,856,506) -- (6,856,506) (168,100) (13,239,518) -- (13,239,518) -- (503,513) -- (503,513) -- (1,775,000) -- (1,775,000) -- (16,980,903) -- (16,980,903) -- 8,450,375 -- 8,450,375 -- 11,055,302 -- 11,055,302 -- 246,261 -- 246,261 690 (4,681,496) -- (4,681,496) 817,351 21,966,558 -- 21,966,558 $ 818,041 $ 17,285,062 $ -- $ 17,285,062 $ -- $ 3,702,286 $ (470,000) $ 3,232,286

61


62

SUPPLEMENTAL INFORMATION AND OTHER REQUIRED DISCLOSURES

Pinnacle Living is a “provider” of continuing care, as such term is contemplated under Virginia law. Pinnacle Living facilities are not legal entities unto themselves. Rather, Pinnacle Living facilities are locations where Pinnacle Living provides continuing care for its residents. Accordingly, as is reflected in the foregoing financial statements, Pinnacle Living owns all assets of the corporation, and all liabilities of the corporation are incurred by Pinnacle Living in its corporate name. In consultation with its auditor, Pinnacle Living has determined that the following Combining Balance Sheets by Community accurately reflect the foregoing realities: No Pinnacle Living facility owns assets, and no Pinnacle Living facility incurs obligations in the name of the facility. However, Pinnacle Living has prepared the following Combining Statements of Activities by Community in an effort to provide information about revenues received and expenses incurred by Pinnacle Living with regard to its various facilities. The reader is cautioned to be mindful of the fact, as stated above, that all such activities are engaged in by the corporation (Pinnacle Living) in these locations, not by the facilities themselves (which are not legal entities), and that this information is more accurately reflected in the Pinnacle Living audited financial statements. Indeed, Pinnacle Living’s auditor has not subjected this information to the auditing procedures applied in the audit of the basic financial statements precisely because it does not accurately describe the entity contractually responsible for providing services to the residents. Nevertheless, the following unaudited information is presented in response to Administrative Letter 2013-01 of the Commissioner of Insurance, State Corporation Commission of Virginia, to be reviewed in connection with the foregoing audited financial statements of Pinnacle Living, which do accurately reflect such contractual relationship.

63

PINNACLE LIVING SUPPLEMENTAL INFORMATION AND OTHER REQUIRED DISCLOSURES COMBINING BALANCE SHEET BY COMMUNITY MAY 31, 2018

ASSETS

Pinnacle Living Pooled Funds

Hermitage

Northern Virginia Current Assets Cash and cash equivalents $ 7,054,280 $ -- Cash and cash equivalents, temporarily restricted 281,367 -- Total cash and cash equivalents 7,335,647 -- Accounts receivable, residents, less allowance for uncollectible accounts $3,886,778

301,941

--

Other receivables 523,376 -- Prepaid expenses 212,728 -- Accrued income receivable 163,582 -- Due from affiliate - WindsorMeade 764,609 -- Assets whose use is limited 3,045,521 -- Total current assets 12,347,404 -- Beneficial interest in trusts, permanently restricted 18,257,029 -- Investments, unrestricted 47,733,319 -- Investments, affiliate – HCRC 7,350,836 -- Investments, affiliate – WindsorMeade 8,037,897 -- Investments, permanently restricted 2,973,938 -- Assets whose use is limited 41,953,758 -- Other assets 165,913 -- Property and equipment, net 91,617,429 -- Total assets $ 230,437,523 $ -- LIABILITIES AND NET ASSETS Liabilities Current Liabilities Accounts payable $ 5,405,456 $ -- Accrued expenses 5,808,931 -- Resident refunds payable 16,038 -- Deposits, prospective residents 390,989 -- Due to affiliate – Pinnacle Living -- -- Bonds payable 1,865,000 -- Other liabilities 386,523 -- Total current liabilities 13,872,937 -- Resident refunds payable -- -- Deposits, prospective residents 1,715,431 -- Notes payable -- -- Bonds payable, net of OID $7,880,701 and bond issuance costs $1,694,199

76,807,982

--

Refundable fees 2,773,668 -- Deferred revenue, entrance fees 68,085,052 -- Other liabilities 45,624 -- Total liabilities 163,300,694 -- Net Assets Unrestricted Operations 45,624,495 -- Temporarily restricted 281,367 -- Permanently restricted 21,230,967 -- Total net assets 67,136,829 -- Total liabilities and net assets $ 230,437,523 $ --

64

Hermitage Richmond

Hermitage Eastern Shore

Hermitage Roanoke

Lydia Roper Home

Cedarfield

$ -- $ -- $ -- $ -- $ -- -- -- -- -- -- -- -- -- -- --

--

--

--

--

-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --

--

--

--

--

-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ -- $ -- $ -- $ -- $ --

65

PINNACLE LIVING SUPPLEMENTAL INFORMATION AND OTHER REQUIRED DISCLOSURES COMBINING BALANCE SHEET BY COMMUNITY (CONTINUED) MAY 31, 2018

ASSETS

Pinnacle Living

Total

WindsorMeade Current Assets Cash and cash equivalents $ 7,054,280 $ 7,888,381 Cash and cash equivalents, temporarily restricted 281,367 30,330 Total cash and cash equivalents 7,335,647 7,918,711 Accounts receivable, residents, less allowance for uncollectible accounts $3,886,778

301,941

196,328

Other receivables 523,376 -- Prepaid expenses 212,728 55,732 Accrued income receivable 163,582 -- Due from affiliate - WindsorMeade 764,609 -- Assets whose use is limited 3,045,521 1,582,693 Total current assets 12,347,404 9,753,464 Beneficial interest in trusts, permanently restricted 18,257,029 -- Investments, unrestricted 47,733,319 -- Investments, affiliate – HCRC 7,350,836 -- Investments, affiliate – WindsorMeade 8,037,897 -- Investments, permanently restricted 2,973,938 -- Assets whose use is limited 41,953,758 3,967,678 Other assets 165,913 -- Property and equipment, net 91,617,429 95,276,297 Total assets $ 230,437,523 $ 108,997,439 LIABILITIES AND NET ASSETS Liabilities Current Liabilities Accounts payable $ 5,405,456 $ 435,277 Accrued expenses 5,808,931 1,914,683 Resident refunds payable 16,038 -- Deposits, prospective residents 390,989 121,022 Due to affiliate – Pinnacle Living -- 764,609 Bonds payable 1,865,000 315,000 Other liabilities 386,523 298 Total current liabilities 13,872,937 3,550,889 Resident refunds payable -- 4,239,071 Deposits, prospective residents 1,715,431 165,000 Notes payable -- 232,957 Bonds payable, net of OID $7,880,701 and bond issuance costs $1,694,199

76,807,982

36,399,851

Refundable fees 2,773,668 55,253,429 Deferred revenue, entrance fees 68,085,052 19,352,344 Other liabilities 45,624 -- Total liabilities 163,300,694 119,193,541 Net Assets Unrestricted Operations 45,624,495 (10,226,432) Temporarily restricted 281,367 30,330 Permanently restricted 21,230,967 -- Total net assets 67,136,829 (10,196,102) Total liabilities and net assets $ 230,437,523 $ 108,997,439

66

HCRC Eliminations Total

$ 817,941 $ -- $ 15,760,602 -- -- 311,697 817,941 -- 16,072,299

--

--

498,269 -- -- 523,376 -- -- 268,460 -- -- 163,582 -- (764,609) -- -- -- 4,628,214 817,941 (764,609) 22,154,200 -- -- 18,257,029 6,706,218 -- 54,439,537 -- (7,350,836) -- -- (8,037,897) -- -- -- 2,973,938 -- -- 45,921,436 -- -- 165,913 -- -- 186,893,726 $ 7,524,159 $ (16,153,342) $ 330,805,779 $ -- $ -- $ 5,840,733 -- -- 7,723,614 -- -- 16,038 -- -- 512,011 -- (764,609) -- -- (125,000) 2,055,000 -- -- 386,821 -- (889,609) 16,534,217 -- -- 4,239,071 -- -- 1,880,431 -- -- 232,957

--

(7,627,302)

105,580,531 -- -- 58,027,097 -- -- 87,437,396 -- -- 45,624 -- (8,516,911) 273,977,324 7,524,159 (7,636,431) 35,285,791 -- -- 311,697 -- -- 21,230,967 7,524,159 (7,636,431) 56,828,455 $ 7,524,159 $ (16,153,342) $ 330,805,779

67

PINNACLE LIVING SUPPLEMENTAL INFORMATION AND OTHER REQUIRED DISCLOSURES COMBINING BALANCE SHEET BY COMMUNITY MAY 31, 2017

ASSETS

Pinnacle Living Pooled Funds

Hermitage

Northern Virginia Current Assets Cash and cash equivalents $ 6,463,299 $ -- Cash and cash equivalents, temporarily restricted 291,128 -- Total cash and cash equivalents 6,754,427 -- Accounts receivable, residents, less allowance for uncollectible accounts $3,797,282

504,941

--

Other receivables 523,445 -- Prepaid expenses 312,372 -- Accrued income receivable 162,746 -- Due from affiliate - WindsorMeade 24,639 -- Assets whose use is limited 2,866,439 Total current assets 11,149,009 -- Beneficial interest in trusts, permanently restricted 22,636,423 -- Investments, unrestricted 44,783,035 -- Investments, affiliate – HCRC 7,350,836 -- Investments, affiliate – WindsorMeade 8,197,380 -- Investments, temporarily restricted 69,486 Investments, permanently restricted 2,973,938 -- Assets whose use is limited 3,410,419 -- Other assets 194,949 -- Property and equipment, net 78,529,347 -- Total assets $ 179,294,822 $ -- LIABILITIES AND NET ASSETS Liabilities Current Liabilities Accounts payable $ 2,369,536 $ -- Accrued expenses 3,765,052 -- Resident refunds payable 23,415 -- Deposits, prospective residents 718,857 -- Due to affiliate – Pinnacle Living -- -- Bonds payable 1,815,000 -- Total current liabilities 8,691,860 -- Resident refunds payable -- -- Deposits, prospective residents 516,000 -- Notes payable -- -- Bonds payable, net of OID $10,716,982 and bond issuance costs $1,099,134

32,572,601

--

Refundable fees 3,468,892 -- Deferred revenue, entrance fees 63,075,057 -- Other liabilities 36,700 -- Total liabilities 108,361,110 -- Net Assets Unrestricted Operations 44,913,407 -- Board designated 49,330 -- Temporarily restricted 360,614 -- Permanently restricted 25,610,361 -- Total net assets 70,933,712 -- Total liabilities and net assets $ 179,294,822 $ --

68

Hermitage Richmond


Hermitage Roanoke

Lydia Roper Home

Cedarfield

$ -- $ -- $ -- $ -- $ -- -- -- -- -- -- -- -- -- -- --

--

--

--

--

-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --

--

--

--

--

-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ -- $ -- $ -- $ -- $ --

69

PINNACLE LIVING SUPPLEMENTAL INFORMATION AND OTHER REQUIRED DISCLOSURES COMBINING BALANCE SHEET BY COMMUNITY (CONTINUED) MAY 31, 2017

ASSETS

Pinnacle Living

Total

WindsorMeade Current Assets Cash and cash equivalents $ 6,463,299 $ 9,694,803 Cash and cash equivalents, temporarily restricted 291,128 17,791 Total cash and cash equivalents 6,754,427 9,712,594 Accounts receivable, residents, less allowance for uncollectible accounts $3,797,282

504,941

148,833

Other receivables 523,445 836,850 Prepaid expenses 312,372 42,414 Accrued income receivable 162,746 -- Due from affiliate - WindsorMeade 24,639 -- Assets whose use is limited 2,866,439 1,644,697 Total current assets 11,149,009 12,385,388 Beneficial interest in trusts, permanently restricted 22,636,423 -- Investments, unrestricted 44,783,035 -- Investments, affiliate – HCRC 7,350,836 -- Investments, affiliate – WindsorMeade 8,197,380 -- Investments, temporarily restricted 69,486 -- Investments, permanently restricted 2,973,938 -- Assets whose use is limited 3,410,419 3,186,727 Other assets 194,949 -- Property and equipment, net 78,529,347 95,270,996 Total assets $ 179,294,822 $ 110,843,111 LIABILITIES AND NET ASSETS Liabilities Current Liabilities Accounts payable $ 2,369,536 $ 653,111 Accrued expenses 3,765,052 1,541,100 Resident refunds payable 23,415 -- Deposits, prospective residents 718,857 294,413 Due to affiliate – Pinnacle Living -- 24,639 Bonds payable 1,815,000 215,160 Total current liabilities 8,691,860 2,728,423 Resident refunds payable -- 5,250,403 Deposits, prospective residents 516,000 141,180 Notes payable -- 55,600 Bonds payable, net of OID $10,716,982 and bond issuance costs $1,099,134

32,572,601

36,168,916

Refundable fees 3,468,892 55,452,940 Deferred revenue, entrance fees 63,075,057 17,540,922 Other liabilities 36,700 198,353 Total liabilities 108,361,110 117,536,737 Net Assets Unrestricted Operations 44,913,407 (6,711,417) Board designated 49,330 -- Temporarily restricted 360,614 17,791 Permanently restricted 25,610,361 -- Total net assets 70,933,712 (6,693,626) Total liabilities and net assets $ 179,294,822 $ 110,843,111

70

HCRC Eliminations Total

$ 818,041 $ -- $ 16,976,143 -- -- 308,919 818,041 -- 17,285,062

--

--

653,774 -- -- 1,360,295 -- -- 354,786 -- -- 162,746 -- (24,639) -- -- -- 4,511,136 818,041 (24,639) 24,327,799 -- -- 22,636,423 6,669,555 -- 51,452,590 -- (7,350,836) -- -- (8,197,380) -- -- -- 69,486 -- -- 2,973,938 -- -- 6,597,146 -- -- 194,949 -- -- 173,800,343 $ 7,487,596 $ (15,572,855) $ 282,052,674 $ -- $ -- $ 3,022,647 -- -- 5,306,152 -- -- 23,415 -- -- 1,013,270 -- (24,639) -- -- (120,000) 1,910,160 -- (144,639) 11,275,644 -- -- 5,250,403 -- -- 657,180 -- -- 55,600

--

(7,685,198)

61,056,319 -- -- 58,921,832 -- -- 80,615,979 -- -- 235,053 -- (7,829,837) 218,068,010 7,487,596 (7,743,018) 37,946,568 -- -- 49,330 -- -- 378,405 -- -- 25,610,361 7,487,596 (7,743,018) 63,984,664 $ 7,487,596 $ (15,572,855) $ 282,052,674

71

PINNACLE LIVING SUPPLEMENTAL INFORMATION AND OTHER REQUIRED DISCLOSURES COMBINING STATEMENT OF ACTIVITIES BY COMMUNITY YEAR ENDED MAY 31, 2018

Pinnacle Living Shared Resources

Hermitage Northern Virginia

Operating Revenues and Support Residents’ fees $ -- $ 9,611,461 Benevolent care -- (157,337) Amortization of deferred revenue from entrance fees -- 20,066 Ancillary service revenue, net -- 41,503 Other operating revenue 503,060 168,015 Total operating revenues and support 503,060 9,683,708 Operating Expenses Administration 5,481,107 773,015 Marketing 297,656 708,167 General overhead 85,159 171,904 Depreciation 246,751 1,368,099 Dining -- 1,920,421 Resident services -- 667,293 Designated funds -- 31,475 Building and grounds -- 1,633,371 Housekeeping -- 660,593 Nursing -- 3,389,055 Households / Neighborhoods -- -- Total operating expenses 6,110,673 11,323,393 Excess (deficiency) from operations1 (5,607,613) (1,639,685) Other Non-operating Changes Bequests 1,758,831 -- Trusts and legacies 123,188 -- Present value change in trusts, permanently restricted -- (101,304) Contributions, Samaritan Program, temporarily restricted 68,364 21,410 Contributions, designated funds -- 33,643 Contributions, designated funds, temporarily restricted -- -- Contributions, other 2,500 2,000 Investment income 1,305,206 88 Investment income, temporarily restricted 4,431 -- Net realized gains (losses) on investments 1,287,609 -- Net realized losses on investments, temporarily restricted (2,070) -- Net unrealized gains (losses) on investments 530,747 -- Net unrealized losses on investments, temporarily restricted (3,234) -- Loss on disposal of property and equipment -- -- Interest expense 205,630 (341,223) Other non-operating charges and fees (115,285) -- Allocation of shared revenues and expenses 441,696 (63,609) Total non-operating changes 5,607,613 (448,995) Excess (deficiency)2 $ -- $ (2,088,680)

1This line item corresponds to the Change in net assets from operations line item on the Combining Statement of Activities. 2This line item corresponds to the Change in net assets line item on the Combining Statement of Activities.

72

Hermitage Richmond


Hermitage Roanoke

Lydia Roper Home

Cedarfield

$ 12,820,025 $ 3,043,249 $ 3,279,045 $ 400,054 $ 21,100,916 (330,945) (99,107) (140,522) 10,612 (61,963) 2,316 9,642 23,165 -- 8,852,225 12,079 (8,552) 82,840 -- 35,812 93,122 33,678 83,644 1,934 806,771 12,596,597 2,978,910 3,328,172 412,600 30,733,761 652,203 508,788 370,567 37,034 1,301,585 616,583 156,861 318,589 45,554 488,578 211,746 83,027 79,655 29,199 376,955 741,249 723,417 305,180 131,728 2,917,029 1,925,007 730,361 800,970 189,725 5,660,754 616,303 187,803 227,678 54,320 1,379,184 82,967 17,573 2,084 4,827 106,530 1,517,995 773,438 928,712 138,164 4,815,634 648,005 197,000 208,950 18,300 1,778,863 1,294,720 1,367,727 1,345,160 340,052 4,881,170 3,715,056 -- -- -- -- 12,021,834 4,745,995 4,587,545 988,903 23,706,282 574,763 (1,767,085) (1,259,373) (576,303) 7,027,479 250 -- -- 2,180 -- 27,639 -- 650,908 -- -- (281,319) (64,106) (3,617,650) (17,893) (297,122) 20,466 1,540 7,878 1,792 106,241 64,724 7,975 3,471 4,925 120,958 -- -- -- -- -- -- -- -- -- 6,000 112 55 55 155,965 1,151 -- -- -- -- -- -- -- -- (77,400) -- -- -- -- -- -- -- -- -- (126,929) -- -- -- -- -- -- -- (96,720) -- -- -- (438,650) (215,927) (208,903) (60,269) (1,000,784) (9,841) -- -- -- (369) (81,771) (40,252) (38,943) (11,235) (205,886) (698,390) (407,435) (3,203,184) (128,864) (1,269,811) $ (123,627) $ (2,174,520) $ (4,462,557) $ (705,167) $ 5,757,668

73

PINNACLE LIVING SUPPLEMENTAL INFORMATION AND OTHER REQUIRED DISCLOSURES COMBINING STATEMENT OF ACTIVITIES BY COMMUNITY (CONTINUED) YEAR ENDED MAY 31, 2018

Pinnacle Living Total

WindsorMeade

Operating Revenues and Support Residents’ fees $ 50,254,750 $ 12,305,178 Benevolent care (779,262) -- Amortization of deferred revenue from entrance fees 8,907,414 2,170,843 Ancillary service revenue, net 163,682 132,210 Other operating revenue 1,690,224 270,816 Total operating revenues and support 60,236,808 14,879,047 Operating Expenses Administration 9,124,299 1,889,463 Marketing 2,631,988 609,280 General overhead 1,037,645 882,802 Depreciation 6,433,453 3,394,904 Dining 11,227,238 2,299,201 Resident services 3,132,581 608,865 Designated funds 245,456 -- Building and grounds 9,807,314 2,622,179 Housekeeping 3,511,711 542,266 Nursing 12,617,884 517,463 Households / Neighborhoods 3,715,056 2,403,946 Total operating expenses 63,484,625 15,770,369 Excess (deficiency) from operations1 (3,247,817) (891,322) Other Non-operating Changes Bequests 1,761,261 -- Trusts and legacies 801,735 -- Present value change in trusts, permanently restricted (4,379,394) -- Contributions, Samaritan Program, temporarily restricted 227,691 10,162 Contributions, designated funds 235,696 -- Contributions, designated funds, temporarily restricted -- 2,377 Contributions, other 10,500 -- Investment income 1,462,632 24,269 Investment income, temporarily restricted 4,431 -- Net realized gains (losses) on investments 1,210,209 -- Net realized losses on investments, temporarily restricted (2,070) -- Net unrealized gains (losses) on investments 403,818 -- Net unrealized losses on investments, temporarily restricted (3,234) -- Loss on disposal of property and equipment (96,720) -- Interest expense (2,060,126) (2,630,086) Other non-operating charges and fees (125,495) (17,876) Allocation of shared revenues and expenses -- -- Total non-operating changes (549,066) (2,611,154) Excess (deficiency)2 $ (3,796,883) $ (3,502,476)


74

HCRC

Eliminations

Total

$ -- $ -- $ 62,559,928 -- -- (779,262) -- -- 11,078,257 -- -- 295,892 -- (442,395) 1,518,645 -- (442,395) 74,673,460 -- (442,395) 10,571,367 -- -- 3,241,268 -- -- 1,920,447 -- -- 9,828,357 -- -- 13,526,439 -- -- 3,741,446 -- -- 245,456 -- -- 12,429,493 -- -- 4,053,977 -- -- 13,135,347 -- -- 6,119,002 -- (442,395) 78,812,599 -- -- (4,139,139) -- -- 1,761,261 -- -- 801,735 -- -- (4,379,394) -- -- 237,853 -- -- 235,696 -- -- 2,377 -- -- 10,500 177,102 (467,648) 1,196,355 -- -- 4,431 -- -- 1,210,209 -- -- (2,070) (140,438) 39,482 302,862 -- -- (3,234) -- -- (96,720) -- 534,753 (4,155,459) (101) -- (143,472) -- -- -- 36,563 106,587 (3,017,070) $ 36,563 $ 106,587 $ (7,156,209)

75

PINNACLE LIVING SUPPLEMENTAL INFORMATION AND OTHER REQUIRED DISCLOSURES COMBINING STATEMENT OF ACTIVITIES BY COMMUNITY YEAR ENDED MAY 31, 2017

Pinnacle Living Shared Resources

Hermitage Northern Virginia

Operating Revenues and Support Residents’ fees $ -- $ 9,586,237 Benevolent care -- (214,664) Amortization of deferred revenue from entrance fees -- 13,518 Ancillary service revenue, net -- 27,576 Other operating revenue 467,037 178,363 Total operating revenues and support 467,037 9,591,030 Operating Expenses Administration 4,589,286 699,951 Marketing 288,668 556,030 General overhead 91,371 168,213 Depreciation 236,946 1,325,329 Dining -- 1,857,672 Resident services -- 558,735 Designated funds -- 28,292 Building and grounds -- 1,556,753 Housekeeping -- 654,053 Nursing -- 3,245,071 Households / Neighborhoods -- -- Total operating expenses 5,206,271 10,650,099 Excess (deficiency) from operations1 (4,739,234) (1,059,069) Other Non-operating Changes Bequests -- -- Trusts and legacies 98,481 -- Present value change in trusts, permanently restricted -- 55,510 Contributions, Samaritan Program, temporarily restricted 118,231 7,514 Contributions, designated funds -- 28,292 Contributions, designated funds, temporarily restricted -- 12,231 Contributions, other 4,300 2,171 Investment income 1,270,658 646 Investment income, temporarily restricted 53,912 -- Net realized gains (losses) on investments 587,033 -- Net realized losses on investments, temporarily restricted (8,429) -- Net unrealized gains (losses) on investments 1,756,774 -- Net unrealized losses on investments, temporarily restricted (28,236) -- Loss on disposal of property and equipment (263) (870) Interest expense (92,438) (187,241) Other non-operating charges and fees (42,683) -- Allocation of shared revenues and expenses 1,021,894 (153,897) Total non-operating changes 4,739,234 (235,644) Excess (deficiency)2 $ -- $ (1,294,713)


76

Hermitage Richmond


Hermitage Roanoke

Lydia Roper Home

Cedarfield

$ 12,235,883 $ 2,979,510 $ 3,515,941 $ 487,947 $ 20,572,372 (450,593) (62,187) (130,302) (2,682) (62,284) 1,008 13,791 25,671 -- 9,431,704 29,716 (13,451) 80,287 -- 58,069 66,407 24,719 112,383 4,930 440,618 11,882,421 2,942,382 3,603,980 490,195 30,440,479 530,633 515,010 351,140 38,086 1,243,913 567,755 138,615 273,315 22,996 453,643 211,593 90,195 90,394 40,168 373,139 765,603 746,688 315,908 120,452 2,727,355 1,963,474 673,355 777,863 197,785 5,343,518 664,654 177,265 199,262 55,583 1,302,813 64,244 1,078 13,253 1,549 45,531 1,289,308 713,875 833,187 141,108 4,192,725 708,288 193,840 215,307 29,798 1,712,516 3,642,532 1,290,919 1,315,085 315,140 4,676,420 568,075 -- -- -- -- 10,976,159 4,540,840 4,384,714 962,665 22,071,573 906,262 (1,598,458) (780,734) (472,470) 8,368,906 1,270 -- -- -- 157,127 37,408 -- 693,776 -- -- 210,999 34,537 2,631,117 9,768 163,285 81,723 1,645 8,721 2,930 27,103 64,244 1,078 13,253 1,549 45,531 6,450 -- 6,628 3,665 29,304 171 171 3,817 171 171 826 402 402 148,538 1,969 -- -- -- -- -- -- -- -- (32,678) -- -- -- -- -- -- -- -- -- (70,275) -- -- -- -- -- -- -- (242) (397) -- (271) (235,368) (115,937) (114,748) (32,527) (539,905) (19,960) -- -- -- (178) (196,714) (95,751) (95,751) (27,080) (452,701) (48,951) (174,097) 3,146,818 4,061 (568,565) $ 857,311 $ (1,772,555) $ 2,366,084 $ (468,409) $ 7,800,341

77

PINNACLE LIVING SUPPLEMENTAL INFORMATION AND OTHER REQUIRED DISCLOSURES COMBINING STATEMENT OF ACTIVITIES BY COMMUNITY (CONTINUED) YEAR ENDED MAY 31, 2017

Pinnacle Living Total

WindsorMeade

Operating Revenues and Support Residents’ fees $ 49,377,890 $ 11,979,891 Benevolent care (922,712) (113,898) Amortization of deferred revenue from entrance fees 9,485,692 2,635,945 Ancillary service revenue, net 182,197 134,717 Other operating revenue 1,294,457 245,923 Total operating revenues and support 59,417,524 14,882,578 Operating Expenses Administration 7,968,019 1,925,691 Marketing 2,301,022 436,412 General overhead 1,065,073 934,858 Depreciation 6,238,281 3,364,033 Dining 10,813,667 2,502,905 Resident services 2,958,312 688,158 Designated funds 153,947 3,948 Building and grounds 8,726,956 2,215,147 Housekeeping 3,513,802 551,018 Nursing 14,485,167 1,682,554 Households / Neighborhoods 568,075 -- Total operating expenses 58,792,321 14,304,724 Excess (deficiency) from operations1 625,203 577,854 Other Non-operating Changes Bequests 158,397 -- Trusts and legacies 829,665 -- Present value change in trusts, permanently restricted 3,105,216 -- Contributions, Samaritan Program, temporarily restricted 247,867 12,730 Contributions, designated funds 153,947 3,948 Contributions, designated funds, temporarily restricted 58,278 1,031 Contributions, other 10,972 174 Investment income 1,423,441 18,707 Investment income, temporarily restricted 53,912 -- Net realized gains (losses) on investments 554,355 -- Net realized losses on investments, temporarily restricted (8,429) -- Net unrealized gains (losses) on investments 1,686,499 -- Net unrealized losses on investments, temporarily restricted (28,236) -- Loss on disposal of property and equipment (2,043) -- Interest expense (1,318,164) (3,014,625) Other non-operating charges and fees (62,821) (74,118) Allocation of shared revenues and expenses -- -- Total non-operating changes 6,862,856 (3,052,153) Excess (deficiency)2 $ 7,488,059 $ (2,474,299)


78

HCRC

Eliminations

Total

$ -- $ -- $ 61,357,781 -- -- (1,036,610) -- -- 12,121,637 -- -- 316,914 -- (297,631) 1,242,749 -- (297,631) 74,002,471 -- (297,631) 9,596,079 -- -- 2,737,434 -- -- 1,999,931 -- -- 9,602,314 -- -- 13,316,572 -- -- 3,646,470 -- -- 157,895 -- -- 10,942,103 -- -- 4,064,820 -- -- 16,167,721 -- -- 568,075 -- (297,631) 72,799,414 -- -- 1,203,057 -- -- 158,397 -- -- 829,665 -- -- 3,105,216 -- -- 260,597 -- -- 157,895 -- -- 59,309 -- -- 11,146 168,927 (470,000) 1,141,075 -- -- 53,912 -- -- 554,355 -- -- (8,429) (41,560) (170,931) 1,474,008 -- -- (28,236) -- -- (2,043) -- 541,535 (3,791,254) (137) -- (137,076) -- -- -- 127,230 (99,396) 3,838,537 $ 127,230 $ (99,396) $ 5,041,594

79

SUMMARY OF FINANCIAL INFORMATION HERMITAGE NORTHERN VIRGINIA AS OF MAY 31, 2018

Current Year Prior Year Balance Sheet Summary: Total assets $ -- $ -- Total liabilities $ -- $ -- Total net assets $ -- $ -- Statement of Activities Summary: Total operating revenues $ 9,683,708 $ 9,591,030 Total operating expenses $ 11,323,393 $ 10,650,099 Deficiency from operations $ (1,639,685) $ (1,059,069) Total non-operating charges and fees $ (448,995) $ (235,644) Deficiency $ (2,088,680) $ (1,294,713)

Narrative on Financial Condition FY 2018: Hermitage Northern Virginia is lower year-over-year. The decrease in operations is due to a lower occupancy along with higher staffing and maintenance and repair costs. Capital renovations include assisted living apartment renovations and HVAC repairs. Uncompensated benevolent care for The Hermitage is $157,337. This line item represents those residents who have depleted their funds through no fault of their own. If this occurs, the resident is considered a part of the Samaritan Program and services will continue to be provided to the resident.

Summary of Occupancy Information:

Capacity of Residences2

Average Occupancy

Percentage Occupancy

Independent Living / Assisted Living1 104 92 88.4% Health Care 42 41 97.6%

1Hermitage Northern Virginia’s residence configuration allows a resident to remain in their residence in either

independent living or assisted living. Therefore, independent living and assisted living are combined. 2Capacity of residences does not include any residences that are offline due to either renovation or other purposes.

The health care capacity equals the number of beds that are active and would not include any bed offline for residence renovations or due to a resident paying for a private vs. semi-private room.

80

SUMMARY OF FINANCIAL INFORMATION HERMITAGE RICHMOND AS OF MAY 31, 2018

Current Year Prior Year Balance Sheet Summary: Total assets $ -- $ -- Total liabilities $ -- $ -- Total net assets $ -- $ -- Statement of Activities Summary: Total operating revenues $ 12,596,597 $ 11,882,421 Total operating expenses $ 12,021,834 $ 10,976,159 Excess from operations $ 574,763 $ 906,262 Total non-operating charges and fees $ (698,390) $ (48,951) Excess (deficiency) $ (123,627) $ 857,311

Narrative on Financial Condition FY 2018: Occupancy has remained consistent year-over-year. The decrease in operations is due higher staffing, utilities and maintenance and repair costs. Capital renovations include apartment and building renovations as well as electrical and elevator repairs. Uncompensated benevolent care for The Hermitage is $330,945. This line item represents those residents who have depleted their funds through no fault of their own. If this occurs, the resident is considered a part of the Samaritan Program and services will continue to be provided to the resident.



Average Occupancy



1Hermitage Richmond’s residence configuration allows a resident to remain in their residence in either independent

living or assisted living. Therefore, independent living and assisted living are combined. 2Capacity of residences does not include any residences that are offline due to either renovation or other purposes.


81

SUMMARY OF FINANCIAL INFORMATION HERMITAGE EASTERN SHORE AS OF MAY 31, 2018

Current Year Prior Year Balance Sheet Summary: Total assets $ -- $ -- Total liabilities $ -- $ -- Total net assets $ -- $ -- Statement of Activities Summary: Total operating revenues $ 2,978,910 $ 2,942,382 Total operating expenses $ 4,745,995 $ 4,540,840 Deficiency from operations $ (1,767,085) $ (1,598,458) Total non-operating charges and fees $ (407,435) $ (174,097) Deficiency $ (2,174,520) $ (1,772,555)

Narrative on Financial Condition FY 2018: Occupancy at the Hermitage Eastern Shore continues to remain low due to market challenges. Another factor attributing to the loss in operations is uncompensated benevolent care amounting to $99,107. This line item represents those residents who have depleted their funds through no fault of their own. If this occurs, the resident is considered a part of the Samaritan Program and services will continue to be provided to the resident.



Average Occupancy



1Hermitage Eastern Shore’s residence configuration allows a resident to remain in their residence in either

independent living or assisted living. Therefore, independent living and assisted living are combined. 2Capacity of residences does not include any residences that are offline due to either renovation or other purposes.


82

SUMMARY OF FINANCIAL INFORMATION HERMITAGE ROANOKE AS OF MAY 31, 2018

Current Year Prior Year Balance Sheet Summary: Total assets $ -- $ -- Total liabilities $ -- $ -- Total net assets $ -- $ -- Statement of Activities Summary: Total operating revenues $ 3,328,172 $ 3,603,980 Total operating expenses $ 4,587,545 $ 4,384,714 Deficiency from operations $ (1,259,373) $ (780,734) Total non-operating charges and fees $ (3,203,184) $ 3,146,818 Excess (deficiency) $ (4,462,557) $ 2,366,084

Narrative on Financial Condition FY 2018: The Hermitage Roanoke faces a shallow market and unfavorable location which accounts for the lower overall occupancy in assisted living and the health center. The decrease in operations is due to a lower occupancy along with higher staffing and maintenance and repair costs. Hermitage Roanoke receives income from non-operating charges due to trusts donors have generously set-up to help with operations. In fiscal 2018, $650,908 was received from Trusts and legacies. Capital projects include assisted living apartment and building renovations. Uncompensated benevolent care for Hermitage Roanoke is $140,522. This line item represents those residents who have depleted their funds through no fault of their own. If this occurs, the resident is considered a part of the Samaritan Program and services will continue to be provided to the resident.



Average Occupancy


Independent Living 22 20 90.9% Assisted Living 50 37 74.0% Health Care 14 14 100.0%

1Capacity of residences does not include any residences that are offline due to either renovation or other purposes.

The health care capacity equals the number of beds that are active and would not include any bed offline for residence renovations or due to a resident paying for a private room vs. semi-private room.

83

SUMMARY OF FINANCIAL INFORMATION LYDIA ROPER HOME AS OF MAY 31, 2018

Current Year Prior Year Balance Sheet Summary: Total assets $ -- $ -- Total liabilities $ -- $ -- Total net assets $ -- $ -- Statement of Activities Summary: Total operating revenues $ 412,600 $ 490,195 Total operating expenses $ 988,903 $ 962,665 Deficiency from operations $ (576,303) $ (472,470) Total non-operating charges and fees $ (128,864) $ 4,061 Deficiency $ (705,167) $ (468,409)

Narrative on Financial Condition FY 2018: Lydia Roper Home is a small ladies only adult care residence that is supported by the Roper investments. Fees are lower due to the age of the building, the location of the building and the older style apartments. Capital projects include roof repairs along with structural design work on the building.



Average Occupancy


Independent Living / Assisted Living1 26 18 69.2% 1Lydia Roper Home’s residence configuration allows a resident to remain in their unit in either independent living or

assisted living. Therefore, independent living and assisted living are combined. 2Lyida Roper home provides light assisted living services defined as up to one activity of daily living assistance.

84

SUMMARY OF FINANCIAL INFORMATION CEDARFIELD AS OF MAY 31, 2018

Current Year Prior Year Balance Sheet Summary: Total assets $ -- $ -- Total liabilities $ -- $ -- Total net assets $ -- $ -- Statement of Activities Summary: Total operating revenues $ 30,733,761 $ 30,440,479 Total operating expenses $ 23,706,282 $ 22,071,573 Excess from operations $ 7,027,479 $ 8,368,906 Total non-operating charges and fees $ (1,269,811) $ (568,565) Excess $ 5,757,668 $ 7,800,341

Narrative on Financial Condition FY 2018: Cedarfield is Pinnacle Living’s largest community and remains at or above 90% occupancy in independent living causing a positive change in operations and overall net assets. However, year-over-year Cedarfield is lower due to lower occupancy in assisted living and the health center along with increased staffing costs, food costs, maintenance and repair and utilities. Capital projects include independent living turnover renovations as well as expenses associated with the new renovations. Uncompensated benevolent care for Cedarfield is $61,963. This line item represents those residents who have depleted their funds through no fault of their own. If this occurs, the resident is considered a part of the Samaritan Program and services will continue to be provided to the resident.



Average Occupancy





85

SUMMARY OF FINANCIAL INFORMATION WINDSORMEADE AS OF MAY 31, 2018

Current Year Prior Year Balance Sheet Summary: Total assets $ 108,997,439 $ 110,843,111 Total liabilities $ 119,193,541 $ 117,536,737 Total net assets $ (10,196,102) $ (6,693,626) Statement of Activities Summary: Total operating revenues $ 14,879,047 $ 14,882,578 Total operating expenses $ 15,770,369 $ 14,304,724 Excess (deficiency) from operations $ (891,322) $ 577,854 Total non-operating charges and fees $ (2,611,154) $ (3,052,153) Deficiency $ (3,502,476) $ (2,474,299)

Narrative on Financial Condition FY 2018: WindsorMeade has increased its overall occupancy in fiscal 2018 in independent living from 174 to 177. WindsorMeade opened its health service expansion in January 2018 increasing the number of memory support residences (shown in assisted living below) and health center beds by 18 and 10, respectively. The increase in operating expenses is due to the opening of these households as they need to be staffed as WindsorMeade begins to admit residents. Capital projects include apartment renovations, lighting and landscaping along with finalizing the health service expansion.


Capacity of Residencesd1

Average Occupancy





86


87


1

Exhibit B Pinnacle Living Pro Forma Statements of Activities Year Ended June 1, 2018 – May 31, 2019 Operating revenues and support: Residents’ fees $ 52,466,000 Benevolent care (898,000) Amortization of deferred revenue from entrance fees 9,414,000 Total residents’ fees 60,982,000 Ancillary service revenue, net 263,000 Other operating revenue 1,640,000 Total operating revenues and support 62,885,000 Operating expenses: Administration 8,617,000 Marketing 2,780,000 General overhead 1,059,000 Depreciation 6,797,000 Dining 11,189,000 Resident services 2,989,000 Building and grounds 9,603,000 Housekeeping 3,422,000 Nursing / Household / Neighborhoods 16,618,000 Total operating expenses 63,074,000 Change in net assets from operations (189,000) Other non-operating changes: Trusts and legacies 800,000 Contributions 144,000 Investment income 1,568,000 Interest expense (881,000) Total non-operating changes 1,631,000 Change in net assets $ 1,442,000 See accompanying notes

2

Pinnacle Living Pro Forma Footnote Disclosures Year Ended June 1, 2018 – May 31, 2019 Footnote 1: DISCLOSURE PRINCIPLE DEPARTURES AS REQUIRED BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AS ISSUED BY THE

U.S. FINANCIAL ACCOUNTING STANDARDS BOARD

The pro-forma statements are designed to provide a forecasted financial estimate for Pinnacle Living for the next 12 months. The footnote disclosures are not provided along with these statements. To gain a better understanding of Pinnacle Living disclosures to the financial statements, see Exhibit A, the most recent audited financial statements.

Footnote 2: MEASUREMENT PRINCIPLE DEPARTURES AS REQUIRED BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AS ISSUED BY THE U.S. FINANCIAL ACCOUNTING STANDARDS BOARD

A. Financial Information Being Provided

This pro-forma statement does not include a balance sheet or statement of cash flows. To gain a better understanding of all Pinnacle Living’s financial information, see Exhibit A, the most recent audited financial statements.

B. New Accounting Standards

New accounting standards effective for fiscal 2019 and thereafter have not been adopted in this pro-forma statement. C. Consolidation of Pinnacle Living’s non-stock related entities in the Pinnacle Living Obligated Group’s Pro-Forma

The Pinnacle Living Obligated Group financial statements do not consolidate, or eliminate, financial information from its related non-stock entities, WindsorMeade or Hermitage Capital & Reserve Corporation. The consolidated statements along with any accompanying eliminations are completed once a year during the audit.

D. Amortization of deferred revenue from entrance fees The pro-forma statements include assumptions for move-ins, move-outs and transfers between levels of care. These statements use a five year historical moving average, with reasonable adjustments made by the accounting team in lieu of actuarially determined estimates.

E. Depreciation Depreciation amounts for assets placed in service, as well as future capital projects, are based on an average estimated life. Actual approved capital projects may be different than budgeted capital projects.

Documents

September 2018 - State Corporation Commission · 2018-12-19 · This is a disclosure statement intended to comply with the provisions of Section 38.2-4900 through 38.2-4904 of the