NOTE 8. Investments in and Advances to Unconsolidated Joint Ventures

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


Entity(1)	Segment	Carrying Amount		Ownership %
CCRC JV(2)	senior housing	$	465,179	49
HCRMC(3)	senior housing and post-acute/skilled nursing		—	9
MBK JV(4)	senior housing		34,131	50
HCP Ventures III, LLC	medical office		9,241	30
HCP Ventures IV, LLC	medical office and hospital		11,884	20
HCP Life Science(5)	life science		68,582	50-63
Vintage Park	senior housing		8,729	85
MBK Development JV(4)	senior housing		2,224	50
Suburban Properties, LLC	medical office		4,621	67
Advances to unconsolidated joint ventures, net			653
		$	605,244

(1)

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

(2)

Includes two unconsolidated joint ventures in a RIDEA structure (CCRC PropCo and CCRC OpCo). See additional information regarding the CCRC JV and the Brookdale Transaction in Note 3.

(3)

In December 2015, September 2015 and December 2014, the Company recognized impairment charges of $19 million, $27 million and $36 million, respectively. See Note 17 for additional information regarding the impairment charges; also, see Note 6 regarding the Company’s related HCRMC DFL investments.

(4)

Includes two unconsolidated joint ventures in a RIDEA structure (PropCo and OpCo).

(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):


	December 31,
	2015(1)		2014
Real estate, net	$	4,470,249	$	4,537,553
Goodwill and other assets, net		4,935,343		4,920,604
Assets held for sale		94,866		662,740
Total assets	$	9,500,458	$	10,120,897
Capital lease obligations and mortgage debt	$	6,575,531	$	6,733,943
Accounts payable and other		1,111,350		974,206
Liabilities and mortgage debt held for sale		6,318		505,703
Other partners’ capital		1,163,501		1,281,413
HCP’s capital(2)		643,758		625,632
Total liabilities and partners’ capital	$	9,500,458	$	10,120,897

(1)

Includes the financial information of Vintage Park, MBK JV and MBK Development JV, which were formed in January 2015, March 2015 and September 2015, respectively.

(2)

The combined basis difference of the Company’s investments in these joint ventures of $39 million, as of December 31, 2015, is primarily attributable to goodwill, real estate, capital lease obligations, deferred tax assets and lease-related net intangibles.


	Year Ended December 31,
	2015(1)		2014(2)		2013
Total revenues	$	4,464,317	$	4,284,747	$	4,189,793
Income (loss) from discontinued operations		38,071		(24,422)		(22,030)
Net loss(3)		(83,277)		(411,385)		(354,079)
HCP’s share in earnings(3)		57,313		49,570		64,433
Fees earned by HCP		1,873		1,809		1,847
Distributions received by HCP		46,100		7,702		18,091

(1)

Includes the financial information of Vintage Park, MBK JV and MBK Development JV, which were formed in January 2015, March 2015 and September 2015, respectively.

(2)

Includes the financial information of the CCRC JV, which the Company formed in August 2014.

(3)

The net loss in 2015 includes $79 million related to HCRMC’s goodwill that was allocated to disposal groups that were sold. The net loss in 2014 includes impairments, net of the related tax benefit, of $396 million related to HCRMC’s deferred tax assets and trademark intangible assets. The impairments at HCRMC were the result of a continued shift in patient payor sources from Medicare to Medicare Advantage, which negatively impact reimbursement rates and length of stay for HCRMC’s skilled nursing segment and a shift in HCRMC’s marketing and branding strategy. The net loss in 2013 includes a charge of $400 million related to recording of a valuation allowance that reduced the carrying value of HCRMC’s deferred tax assets to an amount that is more likely than not to be realized as determined by HCRMC’s management. HCRMC’s goodwill, intangible assets and deferred tax assets were not previously considered in the Company’s initial investments in the operations of HCRMC. Therefore, the related impairments and valuation allowance against the carrying value of the deferred tax assets do not impact the Company’s recorded investment or impact on the Company’s share of earnings from or its equity investment in HCRMC. However, the circumstances that led to HCRMC’s management to reach the determination that it was necessary to reduce the carrying value of their deferred tax and trademark intangible assets in 2014 are consistent with the Company’s determination that its equity investment in HCRMC was impaired in December 2014 (see Note 17). The Company’s joint venture interest in HCRMC is accounted for using the equity method and results in an ongoing reduction 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 $58 million, $62 million and $62 million of DFL income that is recharacterized to the Company’s share of earnings from HCRMC (equity income from unconsolidated joint ventures) for the years ended December 31, 2015, 2014 and 2013, respectively. See Note 6 for additional discussion.

CCRC JV

On August 29, 2014, as part of the Brookdale Transaction discussed in Note 3, HCP and Brookdale formed unconsolidated joint ventures in a RIDEA structure. At closing, Brookdale contributed eight of its owned campuses; the Company contributed two campuses previously leased to Brookdale valued at $162 million (carrying value of $92 million) and $370 million of cash. At closing, the CCRC JV campuses were encumbered by $569 million of mortgage and entrance fee obligations (see Notes 3 and 5).

HCRMC

On April 20, 2015, the DOJ unsealed a previously filed complaint in the U.S. 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 Notes 6 and 17).

The Company concluded that its equity investment in HCRMC was other-than-temporarily impaired as of September 30, 2015 and recorded an impairment charge of $27 million (see Note 17). 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, and, prospectively, income will be recognized only if cash distributions are received from HCRMC (see Notes 6 and 17).

MBK JVs

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.

On September 25, 2015, the Company and MBK formed a new RIDEA joint venture (“MBK Development JV”) which acquired a $3 million parcel of land for the purpose of developing a 74-unit class A senior housing facility in Santa Rosa, California. The parcel of land is located adjacent to the Oakmont Gardens independent living facility currently owned and operated by the MBK JV.

HCP Ventures III, LLC and HCP Ventures IV, LLC

On December 30, 2015, HCP Ventures III, LLC and HCP Ventures IV, LLC (“HCP Ventures IV”) sold 61 MOBs, three hospitals and a re-development property for total proceeds of $634 million, recognizing gains on sales of real estate of $59 million, of which the Company’s share was $15 million. As part of these sales, the Company received aggregate distributions of $45 million, including repayment of its loan receivable.