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Leases | 3 Months Ended
--- | ---
Mar. 31, 2024
Leases [Abstract] |
Leases | 7. Leases As of March 31, 2024, the Company operated 277 communities under long-term leases (263 operating leases and 14 financing leases). The substantial majority of the Company's lease arrangements are structured as master leases. Under a master lease, numerous communities are leased through an indivisible lease. In certain cases, the Company guarantees the performance and lease payment obligations of its subsidiary lessees under the master leases. An event of default related to an individual property or limited number of properties within a master lease portfolio may result in a default on the entire master lease portfolio. The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or based upon changes in the consumer price index or the leased property revenue. The Company is responsible for all operating costs, including repairs and maintenance, property taxes, and insurance. The leases generally provide for renewal or extension options from 5 to 20 years and in some instances, purchase options. The community leases contain other customary terms, which may include assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions and financial covenants, such as those requiring the Company to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and lease coverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community and/or entity basis. In addition, the Company's lease documents generally contain non-financial covenants, such as those requiring the Company to comply with Medicare or Medicaid provider requirements and maintain insurance coverage. The Company's failure to comply with applicable covenants could constitute an event of default under the applicable lease documents. Many of the Company's debt and lease documents contain cross-default provisions so that a default under one of these instruments could cause a default under other debt and lease documents (including documents with other lenders and lessors). Certain leases contain cure provisions, which generally allow the Company to post an additional lease security deposit if the required covenant is not met. Furthermore, the Company's leases are secured by its communities and, in certain cases, a guaranty by the Company and/or one or more of its subsidiaries. As of March 31, 2024, the Company is in compliance with the financial covenants of its long-term leases. Lease right-of-use assets are reviewed for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company did not recognize any such impairment charges for the three months ended March 31, 2024 and 2023. A summary of operating and financing lease expense (including the respective presentation on the condensed consolidated statements of operations) and net cash outflows from leases is as follows.
| Three Months Ended March 31, |  |
Operating Leases (in thousands) | 2024 |  | 2023 |  |  |  |
Facility operating expense | $ | 1,920 |  |  | $ | 1,626 |  |  |  |  |
Facility lease expense | 51,496 |  |  | 46,127 |  |  |  |  |
Operating lease expense | 53,416 |  |  | 47,753 |  |  |  |  |
Operating lease expense adjustment (1) | 13,089 |  |  | 10,805 |  |  |  |  |
Changes in operating lease assets and liabilities for lessor capital expenditure reimbursements | (249) |  |  | (2,244) |  |  |  |  |
Operating net cash outflows from operating leases | $ | 66,256 |  |  | $ | 56,314 |  |  |  |  |
(1)Represents the difference between the amount of cash operating lease payments and the amount of operating lease expense.
| Three Months Ended March 31, |  |
Financing Leases (in thousands) | 2024 |  | 2023 |  |  |  |
Depreciation and amortization | $ | 2,872 |  |  | $ | 6,655 |  |  |  |  |
Interest expense: financing lease obligations | 5,061 |  |  | 6,552 |  |  |  |  |
Financing lease expense | $ | 7,933 |  |  | $ | 13,207 |  |  |  |  |
Operating cash outflows from financing leases | $ | 5,061 |  |  | $ | 6,552 |  |  |  |  |
Financing cash outflows from financing leases | 262 |  |  | 5,852 |  |  |  |  |
Total net cash outflows from financing leases | $ | 5,323 |  |  | $ | 12,404 |  |  |  |  |
The aggregate amounts of future minimum lease payments, including community, office, and equipment leases, recognized on the condensed consolidated balance sheet as of March 31, 2024 are as follows (in thousands).
Year Ending December 31, | Operating Leases |  | Financing Leases
2024 (nine months) | $ | 196,034 |  |  | $ | 15,198 |
2025 | 262,030 |  |  | 6,850 |
2026 | 147,485 |  |  | 6,834 |
2027 | 149,317 |  |  | 6,083 |
2028 | 86,181 |  |  | 5,917 |
Thereafter | 251,474 |  |  | 20,626 |
Total lease payments | 1,092,521 |  |  | 61,508 |
Purchase option liability and non-cash gain on future sale of property | — |  |  | 145,136 |
Imputed interest and variable lease payments | (260,583) |  |  | (55,054) |
Total lease obligations | $ | 831,938 |  |  | $ | 151,590 |
Leases | 7. Leases As of March 31, 2024, the Company operated 277 communities under long-term leases (263 operating leases and 14 financing leases). The substantial majority of the Company's lease arrangements are structured as master leases. Under a master lease, numerous communities are leased through an indivisible lease. In certain cases, the Company guarantees the performance and lease payment obligations of its subsidiary lessees under the master leases. An event of default related to an individual property or limited number of properties within a master lease portfolio may result in a default on the entire master lease portfolio. The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or based upon changes in the consumer price index or the leased property revenue. The Company is responsible for all operating costs, including repairs and maintenance, property taxes, and insurance. The leases generally provide for renewal or extension options from 5 to 20 years and in some instances, purchase options. The community leases contain other customary terms, which may include assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions and financial covenants, such as those requiring the Company to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and lease coverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community and/or entity basis. In addition, the Company's lease documents generally contain non-financial covenants, such as those requiring the Company to comply with Medicare or Medicaid provider requirements and maintain insurance coverage. The Company's failure to comply with applicable covenants could constitute an event of default under the applicable lease documents. Many of the Company's debt and lease documents contain cross-default provisions so that a default under one of these instruments could cause a default under other debt and lease documents (including documents with other lenders and lessors). Certain leases contain cure provisions, which generally allow the Company to post an additional lease security deposit if the required covenant is not met. Furthermore, the Company's leases are secured by its communities and, in certain cases, a guaranty by the Company and/or one or more of its subsidiaries. As of March 31, 2024, the Company is in compliance with the financial covenants of its long-term leases. Lease right-of-use assets are reviewed for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company did not recognize any such impairment charges for the three months ended March 31, 2024 and 2023. A summary of operating and financing lease expense (including the respective presentation on the condensed consolidated statements of operations) and net cash outflows from leases is as follows.
| Three Months Ended March 31, |  |
Operating Leases (in thousands) | 2024 |  | 2023 |  |  |  |
Facility operating expense | $ | 1,920 |  |  | $ | 1,626 |  |  |  |  |
Facility lease expense | 51,496 |  |  | 46,127 |  |  |  |  |
Operating lease expense | 53,416 |  |  | 47,753 |  |  |  |  |
Operating lease expense adjustment (1) | 13,089 |  |  | 10,805 |  |  |  |  |
Changes in operating lease assets and liabilities for lessor capital expenditure reimbursements | (249) |  |  | (2,244) |  |  |  |  |
Operating net cash outflows from operating leases | $ | 66,256 |  |  | $ | 56,314 |  |  |  |  |
(1)Represents the difference between the amount of cash operating lease payments and the amount of operating lease expense.
| Three Months Ended March 31, |  |
Financing Leases (in thousands) | 2024 |  | 2023 |  |  |  |
Depreciation and amortization | $ | 2,872 |  |  | $ | 6,655 |  |  |  |  |
Interest expense: financing lease obligations | 5,061 |  |  | 6,552 |  |  |  |  |
Financing lease expense | $ | 7,933 |  |  | $ | 13,207 |  |  |  |  |
Operating cash outflows from financing leases | $ | 5,061 |  |  | $ | 6,552 |  |  |  |  |
Financing cash outflows from financing leases | 262 |  |  | 5,852 |  |  |  |  |
Total net cash outflows from financing leases | $ | 5,323 |  |  | $ | 12,404 |  |  |  |  |
The aggregate amounts of future minimum lease payments, including community, office, and equipment leases, recognized on the condensed consolidated balance sheet as of March 31, 2024 are as follows (in thousands).
Year Ending December 31, | Operating Leases |  | Financing Leases
2024 (nine months) | $ | 196,034 |  |  | $ | 15,198 |
2025 | 262,030 |  |  | 6,850 |
2026 | 147,485 |  |  | 6,834 |
2027 | 149,317 |  |  | 6,083 |
2028 | 86,181 |  |  | 5,917 |
Thereafter | 251,474 |  |  | 20,626 |
Total lease payments | 1,092,521 |  |  | 61,508 |
Purchase option liability and non-cash gain on future sale of property | — |  |  | 145,136 |
Imputed interest and variable lease payments | (260,583) |  |  | (55,054) |
Total lease obligations | $ | 831,938 |  |  | $ | 151,590 |

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- Definition The entire disclosure for finance leases of lessee. Includes, but is not limited to, description of lessee's finance lease and maturity analysis of finance lease liability. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 842 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//842-20/tableOfContent + Details
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- Definition The entire disclosure for operating leases of lessee. Includes, but is not limited to, description of operating lease and maturity analysis of operating lease liability. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 842 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//842-20/tableOfContent + Details
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