CONCENTRATION OF CREDIT RISK

9 Months Ended

Sep. 30, 2021

NOTE 3—CONCENTRATION OF CREDIT RISK

As of September 30, 2021, Atria, Sunrise, Brookdale Senior Living, Ardent and Kindred managed or operated approximately 19.9%, 10.0%, 7.9%, 4.7% and 1.0%, respectively, of our consolidated real estate investments based on gross book value (excluding properties classified as held for sale as of September 30, 2021). Because Atria and Sunrise manage our properties in exchange for a management fee from us, we are not directly exposed to their credit risk in the same manner or to the same extent as triple-net tenants like Brookdale Senior Living, Ardent and Kindred.

Based on gross book value, approximately 14.3% and 52.4% of our consolidated real estate investments were senior housing communities included in the triple-net leased properties and senior living operations reportable business segments, respectively (excluding properties classified as held for sale as of September 30, 2021). MOBs, life science, research and innovation centers, IRFs and LTACs, health systems, skilled nursing facilities (“SNFs”) and secured loans receivable and investments collectively comprised the remaining 33.3%. Our consolidated properties were located in 47 states, the District of Columbia, seven Canadian provinces and the United Kingdom as of September 30, 2021, with properties in one state (California) accounting for more than 10% of our total consolidated revenues and net operating income (“NOI,” which is defined as total revenues, excluding interest and other income, less property-level operating expenses and office building services costs) for the three months then ended.

Triple-Net Leased Properties

The properties we lease to Brookdale Senior Living, Ardent and Kindred account for a significant portion of our triple-net leased properties segment revenues and NOI and the following table reflects the concentration risk related to our triple-net leased properties for the periods presented:


	For the Three Months Ended September 30,
	2021		2020
Revenues (1):
Brookdale Senior Living	3.8	%	4.0	%
Ardent	3.3		3.3
Kindred	3.5		3.6
NOI:
Brookdale Senior Living	8.2	%	8.8	%
Ardent	7.1		7.2
Kindred	7.5		7.8

(1)Total revenues include office building and other services revenue, income from loans and investments and interest and other income.

Each of our leases with Brookdale Senior Living, Ardent and Kindred is a triple-net lease that obligates the tenant to pay all property-related expenses, including maintenance, utilities, repairs, taxes, insurance and capital expenditures, and to comply with the terms of the mortgage financing documents, if any, affecting the properties. In addition, each of our Brookdale Senior Living, Ardent and Kindred leases has a corporate guaranty.

Senior Living Operations

As of September 30, 2021, Atria and Sunrise, collectively, provided comprehensive property management and accounting services with respect to 279 of our 542 consolidated senior housing communities, for which we pay annual management fees pursuant to long-term management agreements.

We rely on our managers’ personnel, expertise, technical resources and information systems, proprietary information, good faith and judgment to manage our senior living operations efficiently and effectively. We also rely on our managers to set appropriate resident fees, provide accurate property-level financial results in a timely manner and otherwise operate our senior housing communities in compliance with the terms of our management agreements and all applicable laws and regulations.

Eclipse Senior Living and Pending Operator Transitions

We are in the process of transitioning the operation of 90 senior living communities owned by us and currently operated under management agreements with Eclipse Senior Living, Inc. (“ESL”) to various experienced operators. All of the planned transitions are expected to be completed by the end of 2021. ESL is expected to cease operation of its management business in 2022 following completion of the transitions. We expect to incur certain one-time transition costs and expenses in connection with the transitions. We cannot assure you that these transitions will be completed on the terms or timeline anticipated or at all.

Sale of Kindred and Related Transactions

In June 2021, Kindred and LifePoint Health (“LifePoint”) announced that they entered into a definitive agreement pursuant to which LifePoint would acquire Kindred (the “LifePoint-Kindred Acquisition”). Kindred and LifePoint subsequently announced that, following the closing of the LifePoint-Kindred Acquisition, they plan to organize into two separate healthcare companies, with LifePoint and Kindred’s assets being allocated between the two companies. Kindred and LifePoint have said that they expect to complete these transactions by the end of 2021, subject to the completion of regulatory approvals and satisfaction of customary closing conditions. Under our agreements with Kindred, we currently expect to receive a fee in connection with these transactions. We cannot otherwise predict what effect they may have on Kindred, our properties or our lease with Kindred.