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Leases
 6 Months Ended
Jun. 30, 2020
Leases [Abstract]  
Leases Leases

As of June 30, 2020, the Company operated 305 communities under long-term leases (237 operating leases and 68 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. The Company typically 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, 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 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.

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, 2020, the Company is in compliance with the financial covenants of its long-term leases.

A summary of operating and financing lease expense (including the respective presentation on the condensed consolidated statements of operations) and cash flows from leasing transactions is as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
Operating Leases (in thousands)
2020
 
2019
 
2020
 
2019
Facility operating expense
$
4,935

 
$
4,604

 
$
9,785

 
$
9,229

Facility lease expense
62,379

 
67,689

 
126,860

 
136,357

Operating lease expense
67,314

 
72,293

 
136,645

 
145,586

Operating lease expense adjustment (1)
8,221

 
4,429

 
14,954

 
8,812

Changes in operating lease assets and liabilities for lessor capital expenditure reimbursements
(6,421
)
 
(1,000
)
 
(10,509
)
 
(1,000
)
Operating cash flows from operating leases
$
69,114

 
$
75,722

 
$
141,090

 
$
153,398

 
 
 
 
 
 
 
 
(1)
Represents the difference between cash paid and expense recognized.

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
Financing Leases (in thousands)
2020
 
2019
 
2020
 
2019
Depreciation and amortization
$
8,037

 
$
11,677

 
$
17,181

 
$
23,355

Interest expense: financing lease obligations
11,892

 
16,649

 
25,174

 
33,392

Financing lease expense
$
19,929

 
$
28,326

 
$
42,355

 
$
56,747

 
 
 
 
 
 
 
 
Operating cash flows from financing leases
$
11,892

 
$
16,649

 
$
25,174

 
$
33,392

Financing cash flows from financing leases
4,677

 
5,500

 
9,764

 
10,953

Changes in financing lease assets and liabilities for lessor capital expenditure reimbursement
(1,675
)
 
—

 
(3,414
)
 
—

Total cash flows from financing leases
$
14,894

 
$
22,149

 
$
31,524

 
$
44,345



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, 2020 are as follows (in thousands):
Year Ending December 31,
Operating Leases
 
Financing Leases
2020 (six months)
$
149,099

 
$
33,263

2021
287,241

 
66,168

2022
286,171

 
66,808

2023
288,435

 
67,571

2024
289,829

 
68,814

Thereafter
578,012

 
168,527

Total lease payments
1,878,787

 
471,151

Purchase option liability and non-cash gain on future sale of property
—

 
437,356

Imputed interest and variable lease payments
(469,245
)
 
(305,533
)
Total lease obligations
$
1,409,542

 
$
602,974
Leases Leases

As of June 30, 2020, the Company operated 305 communities under long-term leases (237 operating leases and 68 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. The Company typically 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, 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 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.

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, 2020, the Company is in compliance with the financial covenants of its long-term leases.

A summary of operating and financing lease expense (including the respective presentation on the condensed consolidated statements of operations) and cash flows from leasing transactions is as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
Operating Leases (in thousands)
2020
 
2019
 
2020
 
2019
Facility operating expense
$
4,935

 
$
4,604

 
$
9,785

 
$
9,229

Facility lease expense
62,379

 
67,689

 
126,860

 
136,357

Operating lease expense
67,314

 
72,293

 
136,645

 
145,586

Operating lease expense adjustment (1)
8,221

 
4,429

 
14,954

 
8,812

Changes in operating lease assets and liabilities for lessor capital expenditure reimbursements
(6,421
)
 
(1,000
)
 
(10,509
)
 
(1,000
)
Operating cash flows from operating leases
$
69,114

 
$
75,722

 
$
141,090

 
$
153,398

 
 
 
 
 
 
 
 
(1)
Represents the difference between cash paid and expense recognized.

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
Financing Leases (in thousands)
2020
 
2019
 
2020
 
2019
Depreciation and amortization
$
8,037

 
$
11,677

 
$
17,181

 
$
23,355

Interest expense: financing lease obligations
11,892

 
16,649

 
25,174

 
33,392

Financing lease expense
$
19,929

 
$
28,326

 
$
42,355

 
$
56,747

 
 
 
 
 
 
 
 
Operating cash flows from financing leases
$
11,892

 
$
16,649

 
$
25,174

 
$
33,392

Financing cash flows from financing leases
4,677

 
5,500

 
9,764

 
10,953

Changes in financing lease assets and liabilities for lessor capital expenditure reimbursement
(1,675
)
 
—

 
(3,414
)
 
—

Total cash flows from financing leases
$
14,894

 
$
22,149

 
$
31,524

 
$
44,345



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, 2020 are as follows (in thousands):
Year Ending December 31,
Operating Leases
 
Financing Leases
2020 (six months)
$
149,099

 
$
33,263

2021
287,241

 
66,168

2022
286,171

 
66,808

2023
288,435

 
67,571

2024
289,829

 
68,814

Thereafter
578,012

 
168,527

Total lease payments
1,878,787

 
471,151

Purchase option liability and non-cash gain on future sale of property
—

 
437,356

Imputed interest and variable lease payments
(469,245
)
 
(305,533
)
Total lease obligations
$
1,409,542

 
$
602,974