NOTE 19. Concentration of Credit Risk

Concentrations of credit risk arise when one or more tenants, operators 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 tenants and operators; the information provided is presented for the gross assets and revenues that are associated with certain tenants and operators as percentages of their respective segment’s and total Company’s gross assets and revenues:

The following table lists the Company’s senior housing concentrations:


	Percentage of				Percentage of				Percentage of
	Senior Housing Gross Assets				Senior Housing Revenues				Senior Housing Revenues
	June 30,		December 31,		Three Months Ended June 30,				Six Months Ended June 30,
Operators	2015		2014		2015		2014		2015		2014
Brookdale(1)	28	%	36	%	25	%	46	%	25	%	46	%
HCRMC	10	%	11	%	8	%	10	%	8	%	10	%

The following table lists the Company’s post-acute/skilled nursing concentrations:


	Percentage of Post-Acute/				Percentage of Post-Acute/				Percentage of Post-Acute/
	Skilled Nursing Gross Assets				Skilled Nursing Revenues				Skilled Nursing Revenues
	June 30,		December 31,		Three Months Ended June 30,				Six Months Ended June 30,
Operators	2015		2014		2015		2014		2015		2014
HCRMC	79	%	82	%	78	%	86	%	79	%	86	%

The following table lists the total Company concentrations:


	Percentage of				Percentage of				Percentage of
	Total Company Assets				Total Company Revenues				Total Company Revenues
	June 30,		December 31,		Three Months Ended June 30,				Six Months Ended June 30,
Operators	2015		2014		2015		2014		2015		2014
HCRMC	27	%	31	%	23	%	28	%	24	%	28	%
Brookdale(1)	12	%	13	%	10	%	17	%	10	%	17	%

(1)

On July 31, 2014, Brookdale completed its acquisition of Emeritus. These percentages of segment revenues and total revenues for the three and six months ended June 30, 2014 are prepared on a pro forma basis to reflect the combined concentration for Brookdale and Emeritus, as if the merger had occurred as of the beginning of the period presented. On August 29, 2014, the Company and Brookdale amended or terminated all former leases with Emeritus and entered into two RIDEA joint ventures (see Notes 3 and 18). Percentages do not include senior housing facilities that Brookdale manages (is not a tenant) under a RIDEA structure.

HCRMC’s summarized consolidated financial information follows (in millions):


	June 30,		December 31,
	2015		2014
Real estate and other property, net	$	2,900.8	$	2,934.4
Cash and cash equivalents		165.4		127.9
Goodwill, intangible and other assets, net		4,628.9		4,621.7
Total assets	$	7,695.1	$	7,684.0

Debt and financing obligations	$	6,065.7	$	6,108.3
Accounts payable, accrued liabilities and other		985.8		932.7
Total equity		643.6		643.0
Total liabilities and equity	$	7,695.1	$	7,684.0


	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Revenues	$	1,027.5	$	1,033.9	$	2,081.5	$	2,075.8
Operating, general and administrative expense		(884.2)		(906.4)		(1,782.1)		(1,795.2)
Depreciation and amortization expense		(35.4)		(35.1)		(71.3)		(70.3)
Interest expense		(119.9)		(102.0)		(220.2)		(204.3)
Other income, net		2.1		1.7		4.9		4.6
(Loss) income from continuing operations before income tax expense		(9.9)		(7.9)		12.8		10.6
Income taxes		(4.5)		(3.2)		5.6		4.3
(Loss) income from continuing operations		(5.4)		(4.7)		7.2		6.3
Loss from discontinued operations, net of taxes		(7.1)		(6.2)		(6.0)		(8.8)
Net (loss) income	$	(12.5)	$	(10.9)	$	1.2	$	(2.5)

As of June 30, 2015, Brookdale provided comprehensive property management and accounting services with respect to 106 of the Company’s senior housing facilities and 14 CCRCs owned by the CCRC JV, for which the Company or joint venture pays annual management fees pursuant to long-term management agreements. Most of the management agreements have initial terms ranging from 10 to 15 years, with three to four 5-year renewals. The base management fees are 4.5% to 5.0% of gross revenues (as defined) generated by the RIDEA facilities. In addition, there are incentive management fees payable to Brookdale if operating results of the RIDEA properties exceed pre-established EBITDAR (as defined) thresholds.

Brookdale is subject to the registration and reporting requirements of the SEC and is required to file with the SEC annual reports containing audited financial information and quarterly reports containing unaudited financial information. The information related to Brookdale contained or referred to in this report has been derived from SEC filings made by Brookdale or other publicly available information, or was provided to the Company by Brookdale, and the Company has not verified this information through an independent investigation or otherwise. The Company has no reason to believe that this information is inaccurate in any material respect, but the Company cannot assure the reader of its accuracy. The Company is providing this data for informational purposes only and encourages the reader to obtain Brookdale’s publicly available filings, which can be found on the SEC’s website at www.sec.gov.

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.