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Leases
 6 Months Ended
Jun. 30, 2024
Leases [Abstract]  
Leases
7. Leases

As of June 30, 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 June 30, 2024, the Company is in compliance with the financial covenants of its long-term lease agreements.
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 and six months ended June 30, 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
June 30,		Six Months Ended
June 30,
Operating Leases (in thousands)
2024202320242023
Facility operating expense$2,176 $1,732 $4,096 $3,358 
Facility lease expense50,964 50,512 102,460 96,639 
Operating lease expense53,140 52,244 106,556 99,997 
Operating lease expense adjustment (1)
13,483 11,557 26,572 22,362 
Changes in operating lease assets and liabilities for lessor capital expenditure reimbursements(1,051)— (1,300)(2,244)
Operating net cash outflows from operating leases$65,572 $63,801 $131,828 $120,115 

(1)Represents the difference between the amount of cash operating lease payments and the amount of operating lease expense.
Three Months Ended
June 30,		Six Months Ended
June 30,
Financing Leases (in thousands)
2024202320242023
Depreciation and amortization$2,898 $4,091 $5,770 $10,476 
Interest expense: financing lease obligations5,110 5,453 10,171 12,005 
Financing lease expense$8,008 $9,544 $15,941 $22,481 
Operating cash outflows from financing leases$5,110 $5,453 $10,171 $12,005 
Financing cash outflows from financing leases265 2,126 527 7,978 
Total net cash outflows from financing leases$5,375 $7,579 $10,698 $19,983 

The aggregate amounts of future minimum lease payments, including community, office, and equipment leases, recognized on the condensed consolidated balance sheet as of June 30, 2024 are as follows (in thousands).

Year Ending December 31,Operating LeasesFinancing Leases
2024 (six months)$129,816 $10,209 
2025261,680 7,004 
2026147,137 6,988 
2027148,971 6,237 
202885,882 6,071 
Thereafter252,096 21,146 
Total lease payments1,025,582 57,655 
Purchase option liability and non-cash gain on future sale of property— 145,136 
Imputed interest and variable lease payments(241,800)(51,428)
Total lease obligations$783,782 $151,363 

Subsequent to the three months ended June 30, 2024, the Company and Omega Healthcare Investors, Inc. ("Omega") amended the existing master lease pursuant to which the Company continues to lease 24 communities from Omega. The Company's amended master lease has an initial term to expire on December 31, 2037. As part of the amendment, Omega agreed to make available up to $80.0 million to fund costs associated with capital expenditures for the communities through December 31, 2037. The annual rent under the lease will not be adjusted upon reimbursements for capital expenditures in the aggregate amount of up to $30.0 million of the $80.0 million pool, which is available in certain tranches through June 30, 2028. With respect to the remaining $50.0 million of the $80.0 million pool, the annual rent under the lease will prospectively increase by the amount of each reimbursement multiplied by 9.5%. The $50.0 million will be available in certain tranches beginning January 1, 2025, subject to certain annual reimbursement caps specified in the lease. Under the terms of the amendment, rent will escalate annually per the terms of the existing lease escalator, with a potential minor contingent rent adjustment beginning in 2028 depending on lease performance. The Company preliminarily estimates that the lease modification will increase the right-of-use assets and lease obligations recognized on its condensed consolidated balance sheet each by approximately $220.0 million.
Leases
7. Leases

As of June 30, 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 June 30, 2024, the Company is in compliance with the financial covenants of its long-term lease agreements.
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 and six months ended June 30, 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
June 30,		Six Months Ended
June 30,
Operating Leases (in thousands)
2024202320242023
Facility operating expense$2,176 $1,732 $4,096 $3,358 
Facility lease expense50,964 50,512 102,460 96,639 
Operating lease expense53,140 52,244 106,556 99,997 
Operating lease expense adjustment (1)
13,483 11,557 26,572 22,362 
Changes in operating lease assets and liabilities for lessor capital expenditure reimbursements(1,051)— (1,300)(2,244)
Operating net cash outflows from operating leases$65,572 $63,801 $131,828 $120,115 

(1)Represents the difference between the amount of cash operating lease payments and the amount of operating lease expense.
Three Months Ended
June 30,		Six Months Ended
June 30,
Financing Leases (in thousands)
2024202320242023
Depreciation and amortization$2,898 $4,091 $5,770 $10,476 
Interest expense: financing lease obligations5,110 5,453 10,171 12,005 
Financing lease expense$8,008 $9,544 $15,941 $22,481 
Operating cash outflows from financing leases$5,110 $5,453 $10,171 $12,005 
Financing cash outflows from financing leases265 2,126 527 7,978 
Total net cash outflows from financing leases$5,375 $7,579 $10,698 $19,983 

The aggregate amounts of future minimum lease payments, including community, office, and equipment leases, recognized on the condensed consolidated balance sheet as of June 30, 2024 are as follows (in thousands).

Year Ending December 31,Operating LeasesFinancing Leases
2024 (six months)$129,816 $10,209 
2025261,680 7,004 
2026147,137 6,988 
2027148,971 6,237 
202885,882 6,071 
Thereafter252,096 21,146 
Total lease payments1,025,582 57,655 
Purchase option liability and non-cash gain on future sale of property— 145,136 
Imputed interest and variable lease payments(241,800)(51,428)
Total lease obligations$783,782 $151,363 

Subsequent to the three months ended June 30, 2024, the Company and Omega Healthcare Investors, Inc. ("Omega") amended the existing master lease pursuant to which the Company continues to lease 24 communities from Omega. The Company's amended master lease has an initial term to expire on December 31, 2037. As part of the amendment, Omega agreed to make available up to $80.0 million to fund costs associated with capital expenditures for the communities through December 31, 2037. The annual rent under the lease will not be adjusted upon reimbursements for capital expenditures in the aggregate amount of up to $30.0 million of the $80.0 million pool, which is available in certain tranches through June 30, 2028. With respect to the remaining $50.0 million of the $80.0 million pool, the annual rent under the lease will prospectively increase by the amount of each reimbursement multiplied by 9.5%. The $50.0 million will be available in certain tranches beginning January 1, 2025, subject to certain annual reimbursement caps specified in the lease. Under the terms of the amendment, rent will escalate annually per the terms of the existing lease escalator, with a potential minor contingent rent adjustment beginning in 2028 depending on lease performance. The Company preliminarily estimates that the lease modification will increase the right-of-use assets and lease obligations recognized on its condensed consolidated balance sheet each by approximately $220.0 million.