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Commitments and Contingencies | 9 Months Ended
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Sep. 30, 2014
Commitments and Contingencies. |
Commitments and Contingencies | (12) 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 one or more 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 tables provide information regarding the Company’s concentrations with respect to certain operators and tenants; the information provided is presented for the gross assets and revenues that are associated with certain operators and tenants as percentages of the respective segment’s and total Company’s 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 |
|  | September 30, |  | December 31, |  | Three Months Ended September 30, |  | Nine Months Ended September 30, |
Operators |  | 2014 |  | 2013 |  | 2014 |  | 2013 |  | 2014 |  | 2013 |
HCR ManorCare |  | 10 | % | 11 | % | 7 | % | 10 | % | 9 | % | 10 | %
Brookdale(1) |  | 34 |  | 48 |  | 32 |  | 47 |  | 40 |  | 47 |
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 |
|  | September 30, |  | December 31, |  | Three Months Ended September 30, |  | Nine Months Ended September 30, |
Operators |  | 2014 |  | 2013 |  | 2014 |  | 2013 |  | 2014 |  | 2013 |
HCR ManorCare |  | 89 | % | 89 | % | 86 | % | 74 | % | 86 | % | 82 | %
The following table lists the total Company concentrations:
|  | Percentage of |  | Percentage of |  | Percentage of |
|  | Total Company Assets |  | Total Company Revenues |  | Total Company Revenues |
|  | September 30, |  | December 31, |  | Three Months Ended September 30, |  | Nine Months Ended September 30, |
Operators |  | 2014 |  | 2013 |  | 2014 |  | 2013 |  | 2014 |  | 2013 |
HCR ManorCare |  | 31 | % | 32 | % | 25 | % | 27 | % | 27 | % | 28 | %
Brookdale(1) |  | 14 |  | 19 |  | 13 |  | 16 |  | 15 |  | 17 |
(1) On July 31, 2014, Brookdale completed its acquisition of Emeritus. These percentages of segment revenues, total revenues, segment assets and total assets for all periods presented 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 periods 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 Note 3 for additional information regarding the Brookdale Transaction). Percentages do not include senior housing facilities that Brookdale manages (is not a tenant) on behalf of the Company, under a RIDEA structure. HCR ManorCare’s summarized condensed consolidated financial information follows (in millions):
|  | September 30, |  | December 31, |
|  | 2014 |  | 2013 |
Real estate and other property, net |  | $ | 2,956.4 |  | $ | 2,993.2 |
Cash and cash equivalents |  |  | 137.2 |  |  | 141.8 |
Goodwill, intangible and other assets, net |  |  | 5,084.1 |  |  | 5,174.9 |
Total assets |  | $ | 8,177.7 |  | $ | 8,309.9 |
Debt and financing obligations |  | $ | 6,145.1 |  | $ | 6,258.5 |
Accounts payable, accrued liabilities and other |  |  | 993.7 |  |  | 1,013.4 |
Total equity |  |  | 1,038.9 |  |  | 1,038.0 |
Total liabilities and equity |  | $ | 8,177.7 |  | $ | 8,309.9 |
|  | Three Months Ended September 30, |  | Nine Months Ended September 30, |
|  | 2014 |  | 2013 |  | 2014 |  | 2013 |
Revenues |  | $ | 1,030.9 |  | $ | 1,021.2 |  | $ | 3,117.6 |  | $ | 3,105.0 |
Operating, general and administrative expense |  |  | (888.3) |  |  | (875.5) |  |  | (2,698.6) |  |  | (2,639.5) |
Depreciation and amortization expense |  |  | (36.0) |  |  | (35.7) |  |  | (106.9) |  |  | (108.1) |
Interest expense |  |  | (101.8) |  |  | (103.6) |  |  | (306.5) |  |  | (311.7) |
Other income (expense), net |  |  | (0.5) |  |  | 2.4 |  |  | 4.0 |  |  | 4.1 |
Income from continuing operations before income tax expense |  |  | 4.3 |  |  | 8.8 |  |  | 9.6 |  |  | 49.8 |
Income tax expense |  |  | (2.2) |  |  | (3.6) |  |  | (4.4) |  |  | (17.1) |
Income from continuing operations |  |  | 2.1 |  |  | 5.2 |  |  | 5.2 |  |  | 32.7 |
Income (loss) from discontinued operations, net of taxes |  |  | 3.6 |  |  | (2.6) |  |  | (2.0) |  |  | (8.3) |
Net income |  | $ | 5.7 |  | $ | 2.6 |  | $ | 3.2 |  | $ | 24.4 |
As of September 30, 2014, Brookdale provided comprehensive property management and accounting services with respect to 68 of the Company’s senior housing facilities, for which the Company pays annual management fees pursuant to long-term management agreements. Most of the management agreements have terms ranging from 10 to 15 years, with 5-year renewals. The base management fees are 4.5% to 5.0% of g ross r evenues (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 Quarterly Report on Form 10-Q has been derived from SEC filings made by Brookdale, as the case may be, 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 at 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. Credit Enhancement Guarantee Certain of the Company’s senior housing facilities serve as collateral for $107 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 $371 million as of September 30, 2014.

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