Leases

12 Months Ended

Dec. 31, 2023

Leases [Abstract]

Leases

8. Leases

As of December 31, 2023, 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, property taxes, and insurance. As of December 31, 2023, the weighted average remaining lease term of the Company's operating and financing leases was 5.7 and 2.3 years, respectively. The leases generally provide for renewal or

extension options from 5 to 20 years and in some instances, purchase options. As of December 31, 2023, none of the Company's renewal or extension option periods are included in the lease term for accounting purposes.

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 December 31, 2023, 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 consolidated statements of operations) and net cash outflows from leases is as follows.

	Years Ended December 31,
Operating Leases (in thousands)	2023		2022		2021
Facility operating expense	$	7,105	$	6,329	$	12,606
Facility lease expense	202,410		165,294		174,358
Operating lease expense	209,515		171,623		186,964
Operating lease expense adjustment (1)	45,739		34,896		23,280
Changes in operating lease assets and liabilities for lessor capital expenditure reimbursements	(9,844)		(13,718)		(30,965)
Operating net cash outflows from operating leases	$	245,410	$	192,801	$	179,279

(1) Represents the difference between the amount of cash operating lease payments and the amount of operating lease expense.

	Years Ended December 31,
Financing Leases (in thousands)	2023		2022		2021
Depreciation and amortization	$	16,444	$	38,126	$	37,921
Interest expense: financing lease obligations	21,950		48,061		46,282
Financing lease expense	$	38,394	$	86,187	$	84,203
Operating cash outflows from financing leases	$	21,950	$	48,061	$	46,282
Financing cash outflows from financing leases	8,473		22,221		19,874
Changes in financing lease assets and liabilities for lessor capital expenditure reimbursement	(475)		(11,932)		(11,135)
Total net cash outflows from financing leases	$	29,948	$	58,350	$	55,021

As of December 31, 2023, the weighted average discount rate of the Company's operating and financing leases was 8.4% and 10.3%, respectively.

The aggregate amounts of future minimum lease payments, including community, office, and equipment leases, recognized on the consolidated balance sheet as of December 31, 2023 are as follows (in thousands).

Year Ending December 31,	Operating Leases		Financing Leases
2024	$	260,694	$	20,266
2025	260,501		6,849
2026	145,832		6,833
2027	147,660		6,082
2028	84,767		5,917
Thereafter	251,579		20,625
Total lease payments	1,151,033		66,572
Purchase option liability and non-cash gain on future sale of property	—		145,136
Imputed interest and variable lease payments	(274,526)		(59,859)
Total lease obligations	$	876,507	$	151,849

Leases

8. Leases

As of December 31, 2023, 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, property taxes, and insurance. As of December 31, 2023, the weighted average remaining lease term of the Company's operating and financing leases was 5.7 and 2.3 years, respectively. The leases generally provide for renewal or

extension options from 5 to 20 years and in some instances, purchase options. As of December 31, 2023, none of the Company's renewal or extension option periods are included in the lease term for accounting purposes.

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 December 31, 2023, 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 consolidated statements of operations) and net cash outflows from leases is as follows.

	Years Ended December 31,
Operating Leases (in thousands)	2023		2022		2021
Facility operating expense	$	7,105	$	6,329	$	12,606
Facility lease expense	202,410		165,294		174,358
Operating lease expense	209,515		171,623		186,964
Operating lease expense adjustment (1)	45,739		34,896		23,280
Changes in operating lease assets and liabilities for lessor capital expenditure reimbursements	(9,844)		(13,718)		(30,965)
Operating net cash outflows from operating leases	$	245,410	$	192,801	$	179,279

(1) Represents the difference between the amount of cash operating lease payments and the amount of operating lease expense.

	Years Ended December 31,
Financing Leases (in thousands)	2023		2022		2021
Depreciation and amortization	$	16,444	$	38,126	$	37,921
Interest expense: financing lease obligations	21,950		48,061		46,282
Financing lease expense	$	38,394	$	86,187	$	84,203
Operating cash outflows from financing leases	$	21,950	$	48,061	$	46,282
Financing cash outflows from financing leases	8,473		22,221		19,874
Changes in financing lease assets and liabilities for lessor capital expenditure reimbursement	(475)		(11,932)		(11,135)
Total net cash outflows from financing leases	$	29,948	$	58,350	$	55,021

As of December 31, 2023, the weighted average discount rate of the Company's operating and financing leases was 8.4% and 10.3%, respectively.

The aggregate amounts of future minimum lease payments, including community, office, and equipment leases, recognized on the consolidated balance sheet as of December 31, 2023 are as follows (in thousands).

Year Ending December 31,	Operating Leases		Financing Leases
2024	$	260,694	$	20,266
2025	260,501		6,849
2026	145,832		6,833
2027	147,660		6,082
2028	84,767		5,917
Thereafter	251,579		20,625
Total lease payments	1,151,033		66,572
Purchase option liability and non-cash gain on future sale of property	—		145,136
Imputed interest and variable lease payments	(274,526)		(59,859)
Total lease obligations	$	876,507	$	151,849