Note

–

Long

–

Term Leases

Capital Leases

Effective

March 1, 2014,

NHC began leasing and operating

three

senior healthcare facilities in the state of Missouri under

three

separate lease agreements. Two of the healthcare facilities are skilled nursing facilities that also include assisted living facilities and the

third

healthcare facility is a memory care facility. Each of the leases is a

ten

-year lease with

two

five–year renewal options. Under the terms of the leases, base rent totals

$5,200,000

annually with rent thereafter escalating by

of the increase in facility revenue over the

2014

base year. The leases also contain certain non–performance default provisions which resulted in capital lease classification. However, the initial measurement and recording of the capital lease assets and obligations does

not

include any expected payments under such default provisions, as the Company does

not

expect to incur an obligation for such payments.

Fixed assets recorded under the capital leases, which are included in property and equipment in the consolidated balance sheets, are as follows

(in thousands)

	December 31,
	2018			2017
Buildings and personal property	$	39,032		$	39,032
Accumulated amortization		(18,970	)		(15,045	)
	$	20,062		$	23,987

Operating

Leases

December 31, 2018,

we lease from NHI the real property of

skilled nursing facilities,

seven

assisted living centers and

three

independent living centers under

two

separate lease agreements. As part of the

first

lease agreement, we sublease

four

Florida skilled nursing facilities to a

third

-party operator.

January 1, 2007,

15–year

lease extension began which included

three

additional five–year renewal options. In

December 2012,

NHC extended the lease agreement through the

first

of the

three

additional five–year renewal options, which extended the lease date through

2026.

The

two

additional five–year renewal options on the lease still remain. Under the terms of the lease, base rent totals

$30,750,000

with rent thereafter escalating by

of the increase in facility revenue over a

2007

base year.

September 2013

and under the

second

lease agreement, NHC began operating

seven

skilled nursing facilities in New Hampshire and Massachusetts. The

-year lease term consists of base rent of

$3,450,000

annually with rent escalating by

of the increase in facility revenue over a

2014

base year. Additionally, NHC has the option to purchase the

seven

facilities from NHI in the

year of the lease for a purchase price of

$49,000,000.

Base rent expense under both NHI lease agreements totals

$34,200,000.

Percentage rent under the leases is based on a quarterly calculation of revenue increases and is payable on a quarterly basis. Percentage rent expense under both leases for

2018,

2017,

and

2016

was approximately

$3,713,000,

$3,057,000,

and

$3,720,000,

respectively.

Each lease with NHI is a "triple net lease" under which we are responsible for paying all taxes, utilities, insurance premium costs, repairs and other charges relating to the ownership of the facilities. We are obligated at our expense to maintain adequate insurance on the facilities' assets.

We have a right of

first

refusal with NHI to purchase any of the properties should NHI receive an offer from an unrelated party during the term of the lease or up to

180

days after termination of the related lease.

Minimum Lease Payments

The approximate future minimum lease payments required under all leases that have remaining non–cancelable lease terms at

December 31, 2018

are as follows

(in thousands)

	Operating Leases		Capital Leases
2019	$	34,200	$	5,200
2020		34,200		5,200
2021		34,200		5,200
2022		34,200		5,200
2023		34,200		5,200
Thereafter		108,350		867
Total minimum lease payments	$	279,350	$	26,867
Less: amounts representing interest				(3,815	)
Present value of minimum lease payments				23,052
Less: current portion				(3,924	)
Long–term capital lease obligations			$	19,128