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CONCENTRATION OF CREDIT RISK | 3 Months Ended
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Mar. 31, 2014
Risks and Uncertainties [Abstract] |
CONCENTRATION OF CREDIT RISK | CONCENTRATION OF CREDIT RISK As of March 31, 2014, Atria, Sunrise, Brookdale Senior Living and Kindred managed or operated approximately 19.8%, 13.7%, 9.6% and 3.0%, respectively, of our real estate investments based on gross book value (excluding properties classified as held for sale as of March 31, 2014). Seniors housing communities constituted approximately 63.7% of our real estate investments based on gross book value (excluding properties classified as held for sale as of March 31, 2014), while MOBs, skilled nursing and other facilities, and hospitals collectively comprised the remaining 36.3%. Our properties were located in 46 states, the District of Columbia, two Canadian provinces and the United Kingdom as of March 31, 2014, with properties in one state (California) accounting for more than 10% of our total revenues and total net operating income (“NOI,” which is defined as total revenues, excluding interest and other income, less property-level operating expenses and medical office building services costs) (in each case excluding amounts in discontinued operations) for the three months then ended. Triple-Net Leased Properties For the three months ended March 31, 2014 and 2013, approximately 5.5% and 5.7%, respectively, of our total revenues and 9.0% and 9.5%, respectively, of our total NOI (in each case excluding amounts in discontinued operations) were derived from our lease agreements with Brookdale Senior Living. For the same periods, approximately 7.4% and 9.3%, respectively, of our total revenues and 12.2% and 15.4%, respectively, of our total NOI (in each case excluding amounts in discontinued operations) were derived from our lease agreements with Kindred. Each of our leases with Brookdale Senior Living 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 these leases has guaranty and cross-default provisions tied to other leases with the same tenant or its affiliates, as well as bundled lease renewals. The properties we lease to Brookdale Senior Living and Kindred currently account for a significant portion of our triple-net leased properties segment revenues and NOI and have a meaningful impact on our total revenues and NOI. If either Brookdale Senior Living or Kindred becomes unable or unwilling to satisfy its obligations to us or to renew its leases with us upon expiration of the terms thereof, our financial condition and results of operations could decline and our ability to service our indebtedness and to make distributions to our stockholders could be limited. We cannot assure you that Brookdale Senior Living and Kindred will have sufficient assets, income and access to financing to enable them to satisfy their respective obligations to us, and any failure, inability or unwillingness by Brookdale Senior Living or Kindred to do so could have a material adverse effect on our business, financial condition, results of operations and liquidity, our ability to service our indebtedness and other obligations and our ability to make distributions to our stockholders, as required for us to continue to qualify as a REIT (a “Material Adverse Effect”). We also cannot assure you that Brookdale Senior Living and Kindred will elect to renew their respective leases with us upon expiration of the leases or that we will be able to reposition any non-renewed properties on a timely basis or on the same or better economic terms, if at all. In February 2014, Brookdale Senior Living announced that it had entered into a definitive agreement to acquire Emeritus Corporation, another operator of our triple-net leased properties. We do not expect the transaction, when completed, to have a material impact on our financial condition or results of operations. In September 2013, we entered into favorable agreements with Kindred to extend the leases with respect to 48 of the 108 licensed healthcare assets whose lease terms were originally scheduled to expire on April 30, 2015 (the “2015 Renewal Assets”). The 48 re-leased properties consist of 26 skilled nursing facilities and 22 long-term acute care hospitals. New annual base rent, commencing October 1, 2014, for the 48 re-leased properties will be $95.9 million, an increase of $15 million over then current annual base rent. On October 1, 2013, Kindred also paid us $20 million, which is being amortized over the new lease terms. As part of our agreements, we and Kindred agreed to accelerate the expiration of the lease terms for the 60 non-renewed assets to September 30, 2014. We currently have signed leases for 55 of the 60 skilled nursing facilities that were not re-leased by Kindred, six of which have already been transitioned to the replacement tenant. We intend to sell the remaining five skilled nursing facilities, four of which are under contract for sale. Although we expect to successfully complete all of these transactions by the fourth quarter of 2014, they remain subject to regulatory approval and other conditions, and we cannot assure you that we will be able to do so on a timely basis, if at all, or that expected financial results will be achieved. Kindred is required to continue to perform all of its obligations, including without limitation, payment of all rental amounts, under the applicable master lease for the non-renewed assets until expiration of the current lease term. Subject to the terms of our agreements, we have the flexibility to transition the non-renewed assets either before or after the September 30, 2014 lease expiration date. Moreover, we own or have the rights to all licenses and certificates of need at the properties, and Kindred has extensive and detailed obligations to cooperate and ensure an orderly transition of the properties to another operator. Senior Living Operations As of March 31, 2014, Atria and Sunrise, collectively, provided comprehensive property management and accounting services with respect to 237 of our seniors housing communities, for which we pay annual management fees pursuant to long-term management agreements. As managers, Atria and Sunrise do not lease our properties, and, therefore, we are not directly exposed to their credit risk in the same manner or to the same extent as our triple-net tenants. However, 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 and otherwise operate our seniors housing communities in compliance with the terms of our management agreements and all applicable laws and regulations. Although we have various rights as the property owner under our management agreements, including various rights to terminate and exercise remedies under the agreements as provided therein, Atria’s or Sunrise’s failure, inability or unwillingness to satisfy its respective obligations under those agreements, to efficiently and effectively manage our properties or to provide timely and accurate accounting information with respect thereto could have a Material Adverse Effect on us. In addition, significant changes in Atria’s or Sunrise’s senior management or equity ownership or any adverse developments in their businesses and affairs or financial condition could have a Material Adverse Effect on us. Our 34% ownership interest in Atria entitles us to certain rights and minority protections, as well as the right to appoint two directors to the Atria Board of Directors. As a result of the recapitalization of Sunrise in April 2014, Health Care REIT, Inc. now owns a 24% interest in Sunrise, and Revera Inc. owns the remainde r. We are currently evaluating the impact, if any, this transaction may have on Sunrise or us. Brookdale Senior Living, Kindred, Atria and Sunrise Information Each of Brookdale Senior Living and Kindred is subject to the 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 Senior Living and Kindred contained or referred to in this Quarterly Report on Form 10-Q has been derived from SEC filings made by Brookdale Senior Living or Kindred, as the case may be, or other publicly available information, or was provided to us by Brookdale Senior Living or Kindred, and we have not verified this information through an independent investigation or otherwise. We have no reason to believe that this information is inaccurate in any material respect, but we cannot assure you of its accuracy. We are providing this data for informational purposes only, and you are encouraged to obtain Brookdale Senior Living’s and Kindred’s publicly available filings, which can be found on the SEC’s website at www.sec.gov. Neither Atria nor Sunrise is currently subject to the reporting requirements of the SEC. The information related to Atria and Sunrise contained or referred to within this Quarterly Report on Form 10-Q has been derived from publicly available information or was provided to us by Atria or Sunrise, as the case may be, and we have not verified this information through an independent investigation or otherwise. We have no reason to believe that this information is inaccurate in any material respect, but we cannot assure you of its accuracy.

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- Definition The entire disclosure for any concentrations existing at the date of the financial statements that make an entity vulnerable to a reasonably possible, near-term, severe impact. This disclosure informs financial statement users about the general nature of the risk associated with the concentration, and may indicate the percentage of concentration risk as of the balance sheet date. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=6927468&loc=d3e6327-108592 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -SubTopic 10 -Section 50 -Paragraph 20 -URI http://asc.fasb.org/extlink&oid=6927468&loc=d3e6404-108592 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 20 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13531-108611 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -SubTopic 10 -Section 50 -Paragraph 18 -URI http://asc.fasb.org/extlink&oid=6927468&loc=d3e6351-108592 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13537-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=6927468&loc=d3e6442-108592 + Details
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