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Discontinued Operations and Dispositions of Real Estate | 12 Months Ended
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Dec. 31, 2017
Discontinued Operations and Disposal Groups [Abstract] |
Discontinued Operations and Dispositions of Real Estate | Discontinued Operations and Dispositions of Real Estate Discontinued Operations - Quality Care Properties, Inc. Quality Care Properties, Inc. On October 31, 2016, the Company completed the spin-off (the “Spin-Off”) of its subsidiary, Quality Care Properties, Inc. (“QCP”) (NYSE: QCP). The Spin-Off assets included 338 properties, primarily comprised of the HCR ManorCare, Inc. (“HCRMC”) DFL investments and an equity investment in HCRMC. QCP is an independent, publicly-traded, self-managed and self-administrated REIT. As a result of the Spin-Off, the operations of QCP are now classified as discontinued operations for the years ended December 31, 2016 and 2015. On October 17, 2016, subsidiaries of QCP issued $750 million in aggregate principal amount of senior secured notes due 2023 (the “QCP Notes”), the gross proceeds of which were deposited in escrow until they were released in connection with the consummation of the Spin-Off on October 31, 2016. The QCP Notes bear interest at a rate of 8.125% per annum, payable semiannually. From October 17, 2016 until the completion of the Spin-Off, QCP (a then wholly-owned subsidiary of HCP) incurred $2 million in interest expense. In addition, immediately prior to the effectiveness of the Spin-Off, subsidiaries of QCP received $1.0 billion of proceeds from their borrowings under a senior secured term loan, bearing interest at a rate at QCP’s option of either: (i) LIBOR plus 5.25%, subject to a 1% floor or (ii) a base rate specified in the first lien credit and guaranty agreement plus 4.25%, bringing the total gross proceeds raised by QCP and its subsidiaries under those financings to $1.75 billion. In connection with the consummation of the Spin-Off, QCP and its subsidiaries transferred $1.69 billion in cash and 94 million shares of QCP common stock to HCP and certain of its other subsidiaries, and HCP and its applicable subsidiaries transferred the assets comprising the QCP portfolio to QCP and its subsidiaries. HCP then distributed substantially all of the outstanding shares of QCP common stock to its stockholders, based on the distribution ratio of one share of QCP common stock for every five shares of HCP common stock held by HCP stockholders as of the October 24, 2016 record date for the distribution. The Company recorded the distribution of the assets and liabilities of QCP from its consolidated balance sheet on a historical cost basis as a dividend from stockholders’ equity of $3.5 billion, and zero gain or loss was recognized. The Company primarily used the $1.69 billion proceeds of the cash distribution it received from QCP upon consummation of the Spin-Off to pay down certain of the Company’s existing debt obligations. The Company entered into a Separation and Distribution Agreement (the “Separation and Distribution Agreement”) with QCP in connection with the Spin-Off. The Separation and Distribution Agreement divides and allocates the assets and liabilities of the Company prior to the Spin-Off between QCP and HCP, governs the rights and obligations of the parties regarding the Spin-Off, and contains other key provisions relating to the separation of QCP’s business from HCP. In connection with the Spin-Off, the Company entered into a Transition Services Agreement ("TSA") with QCP. Per the terms of the TSA, the Company agreed to provide certain administrative and support services to QCP on a transitional basis for established fees. The TSA terminated on October 31, 2017. From October 31, 2016 through June 2017, HCP was the sole lender to QCP of an unsecured revolving credit facility (the “Unsecured Revolving Credit Facility”) which had a total commitment of $100 million at inception. No amounts were drawn on the Unsecured Revolving Credit Facility and the total commitment was reduced to zero at June 30, 2017. The results of discontinued operations through October 31, 2016, the Spin-Off date, are included in the consolidated results for the years ended December 31, 2016 and 2015. Summarized financial information for discontinued operations for the years ended December 31, 2016 and 2015 is as follows (in thousands):
| Year Ended December 31,
| 2016 |  | 2015
Revenues: |  |  |
Rental and related revenues | $ | 22,971 |  |  | $ | 27,651 |
Tenant recoveries | 1,233 |  |  | 1,464 |
Income from direct financing leases | 384,752 |  |  | 572,835 |
Total revenues | 408,956 |  |  | 601,950 |
Costs and expenses: |  |  |
Depreciation and amortization | (4,892 | ) |  | (5,880 | )
Operating | (3,367 | ) |  | (3,697 | )
General and administrative | (67 | ) |  | (57 | )
Transaction costs | (86,765 | ) |  | — |
Impairments | — |  |  | (1,295,504 | )
Other income (expense), net | 71 |  |  | 70 |
Income (loss) before income taxes and income from impairments of equity method investments | 313,936 |  |  | (703,118 | )
Income tax benefit (expense) | (48,181 | ) |  | (796 | )
Income from equity method investment | — |  |  | 50,723 |
Impairments of equity method investment | — |  |  | (45,895 | )
Total discontinued operations | $ | 265,755 |  |  | $ | (699,086 | )
During the fourth quarter of 2016, using proceeds from the Spin-Off, the Company repaid $500 million of 6.0% senior unsecured notes that were due to mature in January 2017, $600 million of 6.7% senior unsecured notes that were due to mature in January 2018 and $108 million of mortgage debt; incurring aggregate loss on debt extinguishments of $46 million. HCR ManorCare, Inc. Discontinued operations is primarily comprised of QCP’s HCRMC DFL investments and equity investment in HCRMC. During the years ended December 31, 2016 and 2015, the Company recognized DFL income of $385 million and $573 million, respectively, and received cash payments of $385 million and $483 million, respectively, from the HCRMC DFL investments. The carrying value of the HCRMC DFL investments was $5.2 billion at December 31, 2015. The following summarizes the significant transactions and impairments related to HCRMC: 2015 During the three months ended March 31, 2015, the Company and HCRMC agreed to market for sale the real estate and operations associated with 50 non-strategic facilities that were under a master lease. During the year ended December 31, 2015, the Company completed sales of 22 non-strategic HCRMC facilities for $219 million. During the year ended December 31, 2016, the Company sold an additional 11 facilities for $62 million, bringing the total facilities sold to 33 at the time of the Spin-Off. On March 29, 2015, certain subsidiaries of the Company entered into an amendment to the master lease (the “HCRMC Lease Amendment”) effective April 1, 2015 (the "HCRMC Amended Master Lease"). The HCRMC Lease Amendment reduced initial annual rent by a net $68 million and reset the minimum rent escalation to 3.0% for each lease year through the expiration of the initial term. The initial term was extended five years to an average of 16 years. As consideration for the rent reduction, the Company received a Deferred Rent Obligation (“DRO”) from the Lessee equal to an aggregate amount of $525 million. As a result of the HCRMC Lease Amendment, the Company recorded an impairment charge of $478 million related to its HCRMC DFL investments. The impairment charge reduced the carrying value of the HCRMC DFL investments from $6.6 billion to $6.1 billion, based on the present value of the future lease payments effective April 1, 2015 under the HCRMC Amended Master Lease discounted at the original DFL investments’ effective lease rate. Additionally, HCRMC agreed to sell, and HCP agreed to purchase, nine post-acute facilities for an aggregate purchase price of $275 million. Through December 31, 2015, HCRMC and HCP completed seven of the nine facility purchases for $184 million. Through Spin-Off, HCRMC and HCP completed the remaining two facility purchases for $91 million, bringing the nine facility purchases to an aggregate $275 million, the proceeds of which were used to settle a portion of the DRO discussed above. As of September 30, 2015, the Company concluded that its equity investment in HCRMC was other-than-temporarily impaired and recorded an impairment charge of $27 million. The impairment charge reduced the carrying amount of the Company’s equity investment in HCRMC from $48 million to its fair value of $21 million. The fair value of the Company’s equity investment in HCRMC was based on a discounted cash flow valuation model and inputs were considered to be Level 3 measurements within the fair value hierarchy. The following is a summary of the quantitative information about fair value measurements for the impairment related to the Company’s equity ownership interest in HCRMC using a discounted cash flow valuation model:
Description of Input(s) to the Valuation |  | Valuation Inputs
Range of revenue growth rates(1) |  | (1.8%)-3.0%
Range of occupancy growth rates(1) |  | (0.8%)-0.2%
Range of operating expense growth rates(1) |  | (1.1%)-3.1%
Discount rate |  | 15.20%
Range of earnings multiples |  | 6.0x-7.0x
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(1) | For growth rates, the value ranges provided represent the highest and lowest input utilized in the valuation model for any forecasted period.
As part of the Company’s fourth quarter 2015 review process, including its internal rating evaluation, it assessed the collectibility of all contractual rent payments under the HCRMC Amended Master Lease, as discussed below and assigned an internal rating of “Watch List” as of December 31, 2015. Further, the Company placed the HCRMC DFL investments on nonaccrual status and began utilizing a cash basis method of accounting in accordance with its policies (see Note 2). As a result of assigning an internal rating of “Watch List” to its HCRMC DFL investments during the quarterly review process, the Company further evaluated the carrying amount of its HCRMC DFL investments and determined that it was probable that its HCRMC DFL investments were impaired. As a result of the significant decline in HCRMC’s fixed charge coverage ratio in the fourth quarter of 2015, combined with a lower growth outlook for the post-acute/skilled nursing business, the Company determined that it was probable that its HCRMC DFL investments were impaired. In the fourth quarter of 2015, the Company recorded an allowance for DFL losses (impairment charge) of $817 million, reducing the carrying amount of its HCRMC DFL investments from $6.0 billion to $5.2 billion. The allowance for credit losses was determined as the present value of expected future (i) in-place lease payments under the HCRMC Amended Master Lease and (ii) estimated market rate lease payments, each discounted at the original HCRMC DFL investments’ effective lease rate. Impairments related to an allowance for credit losses are included in impairments, net. The market rate lease payments were based on an income approach utilizing a discounted cash flow valuation model. The significant inputs to this valuation model included forecasted EBITDAR, rent coverage ratios and real estate capitalization rates and are summarized as follows (dollars in thousands):
Description of Input(s) to the Valuation |  | Senior Housing DFL Valuation Inputs |  | Post-acute/ Skilled nursing DFL Valuation Inputs
Range of EBITDAR |  | $75,000-$85,000 |  | $385,000-$435,000
Range of rent coverage ratio |  | 1.05x-1.15x |  | 1.25x-1.35x
Range of real estate capitalization rate |  | 6.25%-7.25% |  | 7.50%-8.50%
In December 2015, the Company concluded that its equity investment in HCRMC was other-than-temporarily impaired and recorded an impairment charge of $19 million, reducing its carrying value to zero. Beginning in January 2016, income was recognized only if cash distributions were received from HCRMC. 2016 The Company’s acquisition of the HCRMC DFL investments in 2011 was subject to federal and state built-in gain tax of up to $2 billion if all the assets were sold within 10 years. At the time of acquisition, the Company intended to hold the assets for at least 10 years, at which time the assets would no longer be subject to the built-in gain tax. In December 2015, the U.S. Federal Government passed legislation which permanently reduced the holding period, for federal tax purposes, to five years. The Company satisfied the five year holding period requirement in April 2016. This legislation was not extended to certain states, which maintain a 10 year requirement. During the year ended December 31, 2016, the Company determined that it may sell assets during the next five years and, therefore, recorded a deferred tax liability of $47 million, representing its estimated exposure to state built-in gain tax. Dispositions of Real Estate Held for Sale At December 31, 2017, four life science facilities, two senior housing triple-net facilities and six SHOP facilities were classified as held for sale, with an aggregate carrying value of $417 million, primarily comprised of real estate assets of $393 million, net of accumulated depreciation of $93 million. At December 31, 2016, 64 senior housing triple-net facilities, four life science facilities and a SHOP facility were classified as held for sale, with an aggregate carrying value of $928 million, primarily comprised of real estate assets of $809 million, net of accumulated depreciation of $193 million. Liabilities of assets held for sale is primarily comprised of intangible and other liabilities at both December 31, 2017 and 2016. RIDEA II Sale Transaction In January 2017, the Company completed the contribution of its ownership interest in RIDEA II to an unconsolidated JV owned by HCP and an investor group led by Columbia Pacific Advisors, LLC (“CPA”) (“HCP/CPA PropCo” and “HCP/CPA OpCo,” together, the “HCP/CPA JV”). In addition, RIDEA II was recapitalized with $602 million of debt, of which $360 million was provided by a third-party and $242 million was provided by HCP. In return for both transaction elements, the Company received combined proceeds of $480 million from the HCP/CPA JV and $242 million in loan receivables and retained an approximately 40% ownership interest in RIDEA II (the note receivable and 40% ownership interest are herein referred to as the “RIDEA II Investments”). This transaction resulted in the Company deconsolidating the net assets of RIDEA II and recognizing a net gain on sale of $99 million. The RIDEA II Investments are currently recognized and accounted for as equity method investments. On November 1, 2017, the Company entered into a definitive agreement with an investor group led by CPA to sell its remaining 40% ownership interest in RIDEA II for $91 million. The Company expects the transaction to close in the first half of 2018. CPA has also agreed to cause refinancing of the Company’s $242 million loan receivables from RIDEA II within one year following the close of the transaction. 2017 Dispositions In January 2017, the Company sold four life science facilities in Salt Lake City, Utah for $76 million, resulting in a net gain on sale of $45 million. In March 2017, the Company sold 64 senior housing triple-net assets, previously under triple-net leases with Brookdale, for $1.125 billion to affiliates of Blackstone Real Estate Partners VIII, L.P., resulting in a net gain on sale of $170 million. Additionally, during the year ended December 31, 2017, the Company sold the following: (i) a life science land parcel in San Diego, California for $27 million, (ii) a life science building in San Diego, California for $5 million, (iii) four senior housing triple-net facilities for $27 million, (iv) five SHOP facilities for $43 million and (v) four medical office buildings (“MOBs”) for $15 million, and recorded a net gain on sale of $41 million. 2016 Dispositions During the year ended December 31, 2016, the Company sold the following: (i) a portfolio of five post-acute/skilled nursing facilities and two senior housing triple-net facilities for $130 million, (ii) five life science facilities for $386 million, (iii) seven senior housing triple-net facilities for $88 million, (iv) three MOBs for $20 million and (v) three SHOP facilities for $41 million. 2015 Dispositions During the year ended December 31, 2015, the Company sold the following: (i) nine senior housing triple-net facilities for $60 million resulting from Brookdale’s exercise of its purchase option received as part of a transaction with Brookdale in 2014, (ii) two parcels of land in its life science segment for $51 million and (iii) a MOB for $400,000.

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- Definition The entire disclosure related to a disposal group. Includes, but is not limited to, a discontinued operation, disposal classified as held-for-sale or disposed of by means other than sale or disposal of an individually significant component. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -URI http://asc.fasb.org/topic&trid=2155823 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 + Details
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