Care Capital Properties, Inc. - 10-K filing on 2016-03-10

Triple-Net Lease Arrangements

12 Months Ended

Dec. 31, 2015

As of December 31, 2015, Senior Care Centers, LLC (together with its subsidiaries, “SCC”) and Avamere Group, LLC (together with its subsidiaries, “Avamere”) operated approximately 19.2% and 10.0% respectively, of our real estate investments based on gross book value. Our properties were located in 36 states as of December 31, 2015, with properties in one state (Texas) accounting for more than 10% of our total revenues for the year then ended.

For the years ended December 31, 2015, 2014 and 2013, approximately 11.7%, 1.5% and 1.5%, respectively, of our total revenues were derived from our lease agreements with SCC, approximately 10.2%, 8.8% and 8.4%, respectively, of our total revenues were derived from our lease agreements with Avamere, and approximately 10.1%, 7.6% and 3.4%, respectively, of our total revenues were derived from our lease agreements with Signature HealthCARE, LLC (together with its subsidiaries, “Signature”). Each of our leases with SCC, Avamere and Signature is a triple-net lease that obligates the tenant to pay all property-related expenses, including maintenance, utilities, repairs, taxes, insurance and capital expenditures.

If SCC, Avamere or Signature becomes unable or unwilling to satisfy its obligations to us or to renew its leases with us upon expiration of the terms thereof, our financial condition and results of operations could decline. We cannot assure you that SCC, Avamere or Signature will have sufficient assets, income and access to financing to enable it to satisfy its respective obligations to us, and any failure, inability or unwillingness by SCC, Avamere or Signature to do so could have a material adverse effect on our business, financial condition, results of operations and liquidity. We also cannot assure you that SCC, Avamere or Signature will elect to renew its respective leases with us upon expiration of the leases or that we will be able to reposition any non-renewed properties on a timely basis or on the same or better economic or other terms, if at all.

The following table sets forth the future contracted minimum rentals, excluding contingent rent escalations, but including straight-line rent adjustments where applicable, for all of our triple-net leases as of December 31, 2015 (excluding properties classified as held for sale as of December 31, 2015 and rents from direct financing lease) (in thousands):



2016	$	328,315
2017	325,260
2018	330,646
2019	333,489
2020	306,100
Thereafter	1,847,749
Total	$	3,471,559

Our straight-line rent receivable balance was $0.6 million and $0.8 million, net of allowances of $87.4 million and $58.0 million, as of December 31, 2015 and 2014, respectively. We recognized charges for straight-line rent allowances within rental income on our combined consolidated statements of income of $25.8 million, $21.4 million and $16.1 million for the years ended December 31, 2015, 2014 and 2013, respectively.

In July 2015, one of our operators notified us of its intention to exercise its purchase options with respect to seven properties. We expect these transactions, if completed, to occur in 2016, although they remain subject to various closing conditions.

On December 1, 2015, Signature acquired from Elmcroft Senior Living, Inc. (together with its subsidiaries, “Elmcroft”) the operations of 18 SNFs owned by us. In connection with the acquisition, we funded a total of $9 million to Signature, of which $8 million was added to the lease basis at an 8.5% return and $1 million was a four-year fully amortizing loan. We entered into a new master lease with Signature to operate the properties at the existing Elmcroft rent plus the additional rent described above.

In December 2014, we paid $10.0 million in full settlement of a certain loan guarantee that had been provided to a third-party lender to a former tenant of ours, which is recorded in other expense in our combined consolidated statements of income.