NOTE 23. Concentration of Credit Risk

Concentrations of credit risk arise when one or more tenants, operators 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 table provides information regarding the Company’s concentrations with respect to certain tenants and operators; the information provided is presented for the gross assets and revenues that are associated with certain tenants and operators as percentages of their respective segment’s and total Company’s gross assets and revenues:


	Percentage of		Percentage of
	Senior Housing Gross Assets		Senior Housing Revenues
	December 31,		Year Ended December 31,
Operators	2015	2014	2015	2014	2013
Brookdale(1)	28	36	23	37	46
HCRMC	12	11	7	8	10


	Percentage of Post-Acute/		Percentage of Post-Acute/
	Skilled Nursing Gross Assets		Skilled Nursing Revenues
	December 31,		Year Ended December 31,
Operators	2015	2014	2015	2014	2013
HCRMC	64	82	80	85	83


	Percentage of Total		Percentage of
	Company Gross Assets		Total Company Revenues
	December 31,		Year Ended December 31,
Operators	2015	2014	2015	2014	2013
HCRMC	23	31	23	26	28
Brookdale (1)	12	13	10	14	17

(1)

On July 31, 2014, Brookdale completed its acquisition of Emeritus. These percentages of segment gross assets, total gross assets, segment revenues and total revenues, 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). Percentages do not include senior housing facilities that Brookdale manages (is not a tenant) under a RIDEA structure.

For discussions of significant HCRMC updates and performance during 2015, see Notes 6, 8 and 17.

As of December 31, 2015, Brookdale provided comprehensive facility management and accounting services with respect to 108 of the Company’s senior housing facilities and 15 CCRCs owned by the CCRC JV, for which the Company or joint venture pay annual management fees pursuant to long-term management agreements. Most of the management agreements have terms ranging from 10 to 15 years, with three to four 5-year renewals. The base management fees are 4.5% to 5.0% of gross revenues (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 U.S. Securities and Exchange Commission (“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 report has been derived from SEC filings made by Brookdale 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.

At December 31, 2015 and 2014, the Company’s gross real estate assets in the state of California represented approximately 24% and 23% of the Company’s total gross assets, respectively. At December 31, 2015 and 2014, the Company’s gross real estate assets in the state of Texas represented approximately 11% and 13% of the Company’s total gross assets, respectively. For the years ended December 31, 2015, 2014 and 2013, the Company’s revenues derived from properties located in the states of California represented approximately 22%, 23% and 21% of the Company’s total revenues, respectively. For the years ended December 31, 2015, 2014 and 2013, the Company’s revenues derived from properties located in the state of Texas represented approximately 13%, 12% and 11% of the Company’s total revenues, respectively.