(11) Commitments and Contingencies

Legal Proceedings

From time to time, the Company is a party to legal proceedings, lawsuits and other claims that arise in the ordinary course of the Company’s business. The Company is not aware of any legal proceedings or claims that it believes may have, individually or taken together, a material adverse effect on the Company’s business, prospects, financial condition, results of operations or cash flows. The Company’s policy is to expense legal costs as they are incurred.

Concentration of Credit Risk

Concentrations of credit risks arise when a number of operators, tenants or obligors related to the Company’s investments are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. The Company regularly monitors various segments of its portfolio to assess potential concentrations of risks. The Company does not have significant foreign operations.

The following table provides information regarding the Company’s concentrations with respect to certain operators; the information provided is presented for the gross assets and revenues that are associated with certain operators as percentages of the respective segment’s and total Company’s gross assets and revenues:

Segment Concentrations:

	Percentage of Senior Housing Gross Assets				Percentage of Senior Housing Revenues
	March 31,		December 31,		Three Months Ended March 31,
Operators	2013		2012		2013		2012
Emeritus	35	%	35	%	35	%	21	%
Sunrise Senior Living (“Sunrise”)(1)	17		17		13		16
HCR ManorCare	11		11		10		12
Brookdale Senior Living (“Brookdale”)(2)	10		11		12		14

	Percentage of Post-Acute/ Skilled Nursing Gross Assets				Percentage of Post-Acute/ Skilled Nursing Revenues
	March 31,		December 31,		Three Months Ended March 31,
Operators	2013		2012		2013		2012
HCR ManorCare	89	%	89	%	87	%	93	%

Total Company Concentrations:

	Percentage of Total Company Gross Assets				Percentage of Total Company Revenues
	March 31,		December 31,		Three Months Ended March 31,
Operators	2013		2012		2013		2012
HCR ManorCare	32	%	31	%	28	%	31	%
Emeritus	14		13		13		7
Sunrise(1)	7		7		5		5
Brookdale(2)	4		4		4		5

(1) Certain of the Company’s properties are leased to tenants who have entered into management contracts with Sunrise to operate the respective property on their behalf. The Company’s concentration of gross assets includes properties directly leased to Sunrise and properties that are managed by Sunrise on behalf of third party tenants.

(2) At March 31, 2013 and December 31, 2012, Brookdale percentages exclude $700 million and $692 million, respectively, of senior housing assets related to 21 senior housing facilities that Brookdale operates on the Company’s behalf under a RIDEA structure. Assuming that these assets were attributable to Brookdale, the percentage of segment and total assets for Brookdale would be 20% and 8%, respectively, at both March 31, 2013 and December 31, 2012. For the three months ended March 31, 2013 and 2012, Brookdale percentages exclude $37 million and $35 million, respectively, of senior housing revenues related to these facilities. Assuming that these revenues were attributable to Brookdale, the percentage of segment and total revenues for Brookdale would be 31% and 11% respectively, for the three months ended March 31, 2013. Assuming that these revenues were attributable to Brookdale, the percentage of segment and total revenues for Brookdale would be 37% and 12% respectively, for the three months ended March 31, 2012.

HCR ManorCare’s summarized condensed consolidated financial information follows (in millions):

	March 31,		December 31,
	2013		2012
Real estate and other property, net	$	3,030.7	$	3,046.6
Cash and cash equivalents	157.8		120.5
Deferred income taxes	1,622.3		1,627.1
Goodwill and intangible assets, net	3,243.7		3,243.8
Other assets, net	778.0		754.5
Total assets	$	8,832.5	$	8,792.5

Debt and financing obligations	$	6,348.7	$	6,374.6
Accounts payable and accrued liabilities	1,073.7		1,019.8
Total liabilities	7,422.4		7,394.4
Redeemable preferred stock	2.1		2.1
Total equity	1,408.0		1,396.0
Total liabilities and equity	$	8,832.5	$	8,792.5

	Three Months Ended March 31,
	2013			2012
Revenues:
Revenues	$	1,068.7		$	1,041.2

Costs and expenses:
Operating, general and administrative	912.4			885.4
Depreciation and amortization	37.3			42.0
Interest expense	104.4			106.3
Total costs and expenses	1,054.1			1,033.7

Other income, net	0.7			1.7

Income before income taxes and equity income from unconsolidated joint ventures	15.3			9.2
Income taxes and equity income from unconsolidated joint ventures	(3.6		)	(2.9		)
Net income	$	11.7		$	6.3

	Three Months Ended March 31,
	2013			2012

Net cash provided by operating activities	$	88.6		$	22.1
Cash flows from investing activities:
Acquisitions of property and equipment	(21.2		)	(24.9		)
Purchase of securities and other	(4.1		)	(2.2		)
Net cash used in investing activities	(25.3		)	(27.1		)
Cash flows from financing activities:
Repayments of debt and financing obligations	(26.0		)	(19.6		)
Net increase (decrease) in cash and cash equivalents	37.3			(24.6		)
Cash and cash equivalents, beginning of period	120.5			186.5
Cash and cash equivalents, end of period	$	157.8		$	161.9

To mitigate the credit risk of leasing properties to certain senior housing and post-acute/skilled nursing operators, leases with operators are often combined into portfolios that contain cross-default terms, so that if a tenant of any of the properties in a portfolio defaults on its obligations under its lease, the Company may pursue its remedies under the lease with respect to any of the properties in the portfolio. Certain portfolios also contain terms whereby the net operating profits of the properties are combined for the purpose of securing the funding of rental payments due under each lease.

Credit Enhancement Guarantee

Certain of the Company’s senior housing facilities serve as collateral for $116 million of debt (maturing May 1, 2025) that is owed by a previous owner of the facilities. This indebtedness is guaranteed by the previous owner who has an investment grade credit rating. These senior housing facilities, which are classified as DFLs, had a carrying value of $375 million as of March 31, 2013.