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LEASES
 9 Months Ended
Sep. 30, 2024
Leases [Abstract]  
LEASES LEASES
Operating Leases
The Company leases most of its skilled nursing and assisted living facilities, as well as its office space and certain vehicles and equipment, under various non-cancelable operating lease agreements. These operating leases expire at various dates through 2049.
Substantially all operating leases for skilled nursing and assisted living facilities are on a “triple-net” basis, which require lessees to pay for all insurance, repairs, utilities, and real property taxes assessed on the leased property, and most of the leases are guaranteed by the Company and/or its stockholders.
For 11 of the facility operating leases, the Company holds an option to purchase the real estate which can be exercised at varying times until March 31, 2038. At lease inception it was determined that the exercise of each of the purchase options was not reasonably certain. Options on three of the leases have become subject to disagreement with the landlord regarding whether the option exercise window has closed, and the Company is working with the landlord to resolve the disagreement.
All facility leases provide for an additional percentage rent based upon specified rates per the terms of the agreements. This additional percentage rent is variable and is expensed as incurred.
Finance Leases
The Company leases certain skilled nursing and assisted living facilities under finance lease agreements. The lease terms of two of the facility finance leases allow for purchase options to be exercised at varying times until May 22, 2027. The Company has determined that it is reasonably certain to exercise the purchase option at the end of each purchase option window. Therefore the Company has calculated the lease term through the end of the purchase option window for each such lease.
In addition, for six of the facility finance leases, the lessor holds an option which could require the Company to purchase the associated real estate. The total obligation to purchase such real estate is approximately $86,751 and can be exercised by the lessor through June 14, 2026 (the “Lessor Options”). For other facility finance leases, the duration of the lease term represented the major part of the remaining economic life of the facility at inception.
Finance lease right-of-use assets are included in property and equipment and have a balance of $140,514 and $37,850 as of September 30, 2024 and December 31, 2023, respectively. The current portion of finance lease liabilities is included in other accrued expenses and has a balance of $1,181 and $942 as of September 30, 2024 and December 31, 2023, respectively. The non-current portion of finance lease liabilities is included in other liabilities and has a balance of $145,700 and $40,766 as of September 30, 2024 and December 31, 2023, respectively.
The components of lease expense were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Operating lease expense
Rent - cost of services (1)
$72,632 $58,366 $200,954 $154,926 
General and administrative expense607 233 2,024 941 
Other variable lease costs (2)
7,045 6,507 24,078 18,471 
Total operating lease expense$80,284 $65,106 $227,056 $174,338 
Finance lease expense
Amortization of right-of-use assets$947 $322 $2,285 $943 
Interest on lease liabilities2,164 327 5,074 656 
Total financing lease expense$3,111 $649 $7,359 $1,599 
Total Lease Expense$83,395 $65,755 $234,415 $175,937 
__________________
(1)Rent - cost of services includes variable lease costs such as Consumer Price Index (CPI) increases and other rent adjustments of $633 and $566 for the three months ended September 30, 2024 and 2023, respectively, and $1,826 and $2,144 for the nine months ended September 30, 2024 and 2023, respectively.
(2)Other variable lease costs of facilities, including property taxes and insurance, are classified in cost of services in the Company’s unaudited condensed combined/consolidated statements of income.
The following table summarizes supplemental cash flow information related to leases:
Nine Months Ended September 30,
20242023
Operating cash paid for amounts included in the measurement of operating lease liabilities$180,006 $139,979 
Operating cash paid for amounts included in the measurement of finance lease liabilities5,074 657 
Financing cash paid for amounts included in the measurement of finance lease liabilities577 1,442 
Operating lease right-of-use assets obtained in exchange for lease liabilities784,291 723,584 
Finance lease right-of-use assets obtained in exchange for lease liabilities
18,298 2,028 
Decrease in finance lease right-of-use assets and liabilities due to lease termination/modification
(2,272)— 
Information relating to the lease term and discount rate is as follows:
As of September 30, 2024
Weighted-average remaining lease term (years)
Operating leases13
Finance leases
7
Weighted-average discount rate
Operating leases6.0 %
Finance leases
6.1 %
Maturities of lease liabilities as of September 30, 2024 were as follows:
Finance LeasesOperating LeasesTotal
2024 (remainder)$2,531 $70,313 $72,844 
202529,891 280,539 310,430 
202692,513 281,184 373,697 
202719,132 280,095 299,227 
20281,949 282,587 284,536 
20291,588 284,217 285,805 
Thereafter54,734 2,421,350 2,476,084 
Total lease payments$202,338 $3,900,285 $4,102,623 
Less: present value discount (55,457)(1,277,576)(1,333,033)
Present value of lease liabilities
$146,881 $2,622,709 $2,769,590 
Maturities of finance leases include amounts the Company would pay in the earliest period in which the lessor can exercise the Lessor Options.
In addition to its lessee activity, the Company generates an immaterial amount of revenue from arrangements where it is a lessor of certain facilities. Revenue from those arrangements is included in other revenue on the condensed combined/consolidated statements of income.
LEASES LEASES
Operating Leases
The Company leases most of its skilled nursing and assisted living facilities, as well as its office space and certain vehicles and equipment, under various non-cancelable operating lease agreements. These operating leases expire at various dates through 2049.
Substantially all operating leases for skilled nursing and assisted living facilities are on a “triple-net” basis, which require lessees to pay for all insurance, repairs, utilities, and real property taxes assessed on the leased property, and most of the leases are guaranteed by the Company and/or its stockholders.
For 11 of the facility operating leases, the Company holds an option to purchase the real estate which can be exercised at varying times until March 31, 2038. At lease inception it was determined that the exercise of each of the purchase options was not reasonably certain. Options on three of the leases have become subject to disagreement with the landlord regarding whether the option exercise window has closed, and the Company is working with the landlord to resolve the disagreement.
All facility leases provide for an additional percentage rent based upon specified rates per the terms of the agreements. This additional percentage rent is variable and is expensed as incurred.
Finance Leases
The Company leases certain skilled nursing and assisted living facilities under finance lease agreements. The lease terms of two of the facility finance leases allow for purchase options to be exercised at varying times until May 22, 2027. The Company has determined that it is reasonably certain to exercise the purchase option at the end of each purchase option window. Therefore the Company has calculated the lease term through the end of the purchase option window for each such lease.
In addition, for six of the facility finance leases, the lessor holds an option which could require the Company to purchase the associated real estate. The total obligation to purchase such real estate is approximately $86,751 and can be exercised by the lessor through June 14, 2026 (the “Lessor Options”). For other facility finance leases, the duration of the lease term represented the major part of the remaining economic life of the facility at inception.
Finance lease right-of-use assets are included in property and equipment and have a balance of $140,514 and $37,850 as of September 30, 2024 and December 31, 2023, respectively. The current portion of finance lease liabilities is included in other accrued expenses and has a balance of $1,181 and $942 as of September 30, 2024 and December 31, 2023, respectively. The non-current portion of finance lease liabilities is included in other liabilities and has a balance of $145,700 and $40,766 as of September 30, 2024 and December 31, 2023, respectively.
The components of lease expense were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Operating lease expense
Rent - cost of services (1)
$72,632 $58,366 $200,954 $154,926 
General and administrative expense607 233 2,024 941 
Other variable lease costs (2)
7,045 6,507 24,078 18,471 
Total operating lease expense$80,284 $65,106 $227,056 $174,338 
Finance lease expense
Amortization of right-of-use assets$947 $322 $2,285 $943 
Interest on lease liabilities2,164 327 5,074 656 
Total financing lease expense$3,111 $649 $7,359 $1,599 
Total Lease Expense$83,395 $65,755 $234,415 $175,937 
__________________
(1)Rent - cost of services includes variable lease costs such as Consumer Price Index (CPI) increases and other rent adjustments of $633 and $566 for the three months ended September 30, 2024 and 2023, respectively, and $1,826 and $2,144 for the nine months ended September 30, 2024 and 2023, respectively.
(2)Other variable lease costs of facilities, including property taxes and insurance, are classified in cost of services in the Company’s unaudited condensed combined/consolidated statements of income.
The following table summarizes supplemental cash flow information related to leases:
Nine Months Ended September 30,
20242023
Operating cash paid for amounts included in the measurement of operating lease liabilities$180,006 $139,979 
Operating cash paid for amounts included in the measurement of finance lease liabilities5,074 657 
Financing cash paid for amounts included in the measurement of finance lease liabilities577 1,442 
Operating lease right-of-use assets obtained in exchange for lease liabilities784,291 723,584 
Finance lease right-of-use assets obtained in exchange for lease liabilities
18,298 2,028 
Decrease in finance lease right-of-use assets and liabilities due to lease termination/modification
(2,272)— 
Information relating to the lease term and discount rate is as follows:
As of September 30, 2024
Weighted-average remaining lease term (years)
Operating leases13
Finance leases
7
Weighted-average discount rate
Operating leases6.0 %
Finance leases
6.1 %
Maturities of lease liabilities as of September 30, 2024 were as follows:
Finance LeasesOperating LeasesTotal
2024 (remainder)$2,531 $70,313 $72,844 
202529,891 280,539 310,430 
202692,513 281,184 373,697 
202719,132 280,095 299,227 
20281,949 282,587 284,536 
20291,588 284,217 285,805 
Thereafter54,734 2,421,350 2,476,084 
Total lease payments$202,338 $3,900,285 $4,102,623 
Less: present value discount (55,457)(1,277,576)(1,333,033)
Present value of lease liabilities
$146,881 $2,622,709 $2,769,590 
Maturities of finance leases include amounts the Company would pay in the earliest period in which the lessor can exercise the Lessor Options.
In addition to its lessee activity, the Company generates an immaterial amount of revenue from arrangements where it is a lessor of certain facilities. Revenue from those arrangements is included in other revenue on the condensed combined/consolidated statements of income.