NOTE 8. Investments in and Advances to Unconsolidated Joint Ventures

On March 30, 2015, the Company and MBK Senior Living (“MBK”), a subsidiary of Mitsui & Co. Ltd, formed a new RIDEA joint venture (“MBK JV”) that owns three senior housing facilities with the Company and MBK each owning a 50% equity interest. MBK manages these communities on behalf of the joint venture. The Company contributed $27 million of cash and MBK contributed the three senior housing facilities with a fair value of $126 million, which were encumbered by $78 million of mortgage debt at closing. The Company accounts for this joint venture as an equity method investment.

The Company owns interests in the following entities that are accounted for under the equity method at March 31, 2015 (dollars in thousands):


Entity(1)	Segment	Investment(2)		Ownership%
CCRC JV(3) (4)	senior housing	$	455,750		49
HCRMC	post-acute/skilled nursing		51,649		9.4
MBK JV	senior housing		27,279		50
HCP Ventures III, LLC	medical office		6,658		30
HCP Ventures IV, LLC(4)	medical office and hospital		26,206		20
HCP Life Science(5)	life science		69,758	50	–	63
Suburban Properties, LLC	medical office		5,312		67
Advances to unconsolidated joint ventures, net			183
		$	642,795

Edgewood Assisted Living Center, LLC	senior housing	$	(448)		45
Seminole Shores Living Center, LLC	senior housing		(635)		50
		$	(1,083)

(1)

These entities are not consolidated because the Company does not control, through voting rights or other means, the joint ventures.

(2)

Represents the carrying value of the Company’s investment in the unconsolidated joint ventures. Negative balances are recorded in accounts payable and accrued liabilities on the Company’s consolidated balance sheets.

(3)

Includes two unconsolidated joint ventures in a RIDEA structure: (i) “CCRC PropCo” and (ii) “CCRC OpCo”.

(4)

Represents VIEs, see Note 17.

(5)

Includes three unconsolidated joint ventures between the Company and an institutional capital partner for which the Company is the managing member. HCP Life Science includes the following partnerships (and the Company’s ownership percentage): (i) Torrey Pines Science Center, LP (50%); (ii) Britannia Biotech Gateway, LP (55%); and (iii) LASDK, LP (63%).

Summarized combined financial information for the Company’s unconsolidated joint ventures follows (in thousands):


	March 31,		December 31,
	2015		2014
Real estate, net	$	5,230,958	$	5,134,587
Goodwill and other assets, net		5,048,919		4,986,310
Total assets	$	10,279,877	$	10,120,897

Capital lease obligations and debt	$	7,218,361	$	7,197,940
Accounts payable		1,093,859		1,015,912
Other partners’ capital		1,316,030		1,281,413
HCP’s capital(1)		651,627		625,632
Total liabilities and partners’ capital	$	10,279,877	$	10,120,897

(1)

The combined basis difference of the Company’s investments in these joint ventures of $10 million, as of March 31, 2015, is primarily attributable to goodwill, real estate, capital lease obligations, deferred tax assets and lease-related net intangibles.


	Three Months Ended March 31,
	2015		2014
Total revenues	$	1,166,454	$	1,067,491
Income (loss) from discontinued operations		1,100		(2,600)
Net income		9,783		7,996
HCP’s share of earnings(1)		13,601		14,528
Fees earned by HCP		460		449
Distributions received by HCP		2,181		3,202

(1)

The Company’s joint venture interest in HCRMC is accounted for using the equity method and results in an ongoing elimination of DFL income proportional to HCP’s ownership in HCRMC. The elimination of the respective proportional lease expense at the HCRMC level in substance results in $16 million of DFL income that is recharacterized to the Company’s share of earnings from HCRMC (equity income from unconsolidated joint ventures) for both the three months ended March 31, 2015 and 2014.

Subsequent Event. On April 20, 2015, the U.S. Department of Justice (“DOJ”) unsealed a previously filed complaint in the United States District Court for the Eastern District of Virginia against HCRMC and certain of its affiliates in three consolidated cases following a civil investigation arising out of three lawsuits filed by former employees of HCRMC under the qui tam provisions of the federal False Claims Act. The DOJ’s complaint in intervention is captioned United States of America, ex rel. Ribik, Carson, and Slough v. HCR ManorCare, Inc., ManorCare Inc., HCR ManorCare Services, LLC and Heartland Employment Services, LLC (Civil Action Numbers: 1:09cv13; 1:11cv1054; 1:14cv1228 (CMH/TCB)). The complaint alleges that HCRMC submitted claims to Medicare for therapy services that were not covered by the skilled nursing facility benefit, were not medically reasonable and necessary, and were not skilled in nature, and therefore not entitled to Medicare reimbursement. While this litigation is at an early stage and HCRMC has indicated that it believes the claims are unjust and it will vigorously defend against them, a significant adverse judgment against HCRMC or significant settlement obligation could impact the carrying value of the Company’s investments in HCRMC’s operations and/or DFLs investment further (see Note 6).