Leases

12 Months Ended

Dec. 31, 2024

Leases [Abstract]

Leases

8. Leases

As of December 31, 2024, the Company operated 266 communities under long-term leases (227 operating leases and 39 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.

After giving effect to the Company's planned acquisition transactions for 30 leased communities subsequent to December 31, 2024, the leases relating to substantially all of the Company's remaining leased communities are fixed rate leases with annual escalators that are fixed. The Company is responsible for all operating costs, including repairs and maintenance, property taxes, and insurance. As of December 31, 2024, the weighted average remaining lease term of the Company's operating and financing leases was 10.3 and 0.8 years, respectively. The leases generally provide for renewal or extension options, or in certain cases, purchase options. As of December 31, 2024, none of the Company's renewal or extension option periods for community leases 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, 2024, the Company is in compliance with the financial covenants of its long-term lease agreements.

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)	2024		2023		2022
Facility operating expense	$	8,122	$	7,105	$	6,329
Facility lease expense	200,587		202,410		165,294
Operating lease expense	208,709		209,515		171,623
Operating lease expense adjustment (1)	48,793		45,739		34,896
Changes in operating lease assets and liabilities for lessor capital expenditure reimbursements	(16,362)		(9,844)		(13,718)
Operating net cash outflows from operating leases	$	241,140	$	245,410	$	192,801

(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)	2024		2023		2022
Depreciation and amortization	$	15,275	$	16,444	$	38,126
Interest expense: financing lease obligations	27,761		21,950		48,061
Financing lease expense	$	43,036	$	38,394	$	86,187
Operating cash outflows from financing leases	$	27,761	$	21,950	$	48,061
Financing cash outflows from financing leases	1,084		8,473		22,221
Changes in financing lease assets and liabilities for lessor capital expenditure reimbursement	(598)		(475)		(11,932)
Total net cash outflows from financing leases	$	28,247	$	29,948	$	58,350

As of December 31, 2024, the weighted average discount rate of the Company's operating and financing leases was 8.8% and 7.8%, 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, 2024 are as follows (in millions).

Year Ending December 31,	Operating Leases		Financing Leases
2025	$	233.2	$	10.7
2026	182.0		7.1
2027	185.0		6.3
2028	182.5		6.1
2029	185.0		6.1
Thereafter	1,089.6		15.3
Total lease payments	2,057.3		51.6
Purchase price for communities subject to acquisition agreements	—		310.0
Reacquisition price in excess of sale-leaseback proceeds	—		(32.8)
Imputed interest and variable lease payments	(772.0)		(45.5)
Other financing obligations	—		20.6
Total lease obligations	$	1,285.3	$	303.9

Leases

8. Leases

As of December 31, 2024, the Company operated 266 communities under long-term leases (227 operating leases and 39 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.

After giving effect to the Company's planned acquisition transactions for 30 leased communities subsequent to December 31, 2024, the leases relating to substantially all of the Company's remaining leased communities are fixed rate leases with annual escalators that are fixed. The Company is responsible for all operating costs, including repairs and maintenance, property taxes, and insurance. As of December 31, 2024, the weighted average remaining lease term of the Company's operating and financing leases was 10.3 and 0.8 years, respectively. The leases generally provide for renewal or extension options, or in certain cases, purchase options. As of December 31, 2024, none of the Company's renewal or extension option periods for community leases 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, 2024, the Company is in compliance with the financial covenants of its long-term lease agreements.

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)	2024		2023		2022
Facility operating expense	$	8,122	$	7,105	$	6,329
Facility lease expense	200,587		202,410		165,294
Operating lease expense	208,709		209,515		171,623
Operating lease expense adjustment (1)	48,793		45,739		34,896
Changes in operating lease assets and liabilities for lessor capital expenditure reimbursements	(16,362)		(9,844)		(13,718)
Operating net cash outflows from operating leases	$	241,140	$	245,410	$	192,801

(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)	2024		2023		2022
Depreciation and amortization	$	15,275	$	16,444	$	38,126
Interest expense: financing lease obligations	27,761		21,950		48,061
Financing lease expense	$	43,036	$	38,394	$	86,187
Operating cash outflows from financing leases	$	27,761	$	21,950	$	48,061
Financing cash outflows from financing leases	1,084		8,473		22,221
Changes in financing lease assets and liabilities for lessor capital expenditure reimbursement	(598)		(475)		(11,932)
Total net cash outflows from financing leases	$	28,247	$	29,948	$	58,350

As of December 31, 2024, the weighted average discount rate of the Company's operating and financing leases was 8.8% and 7.8%, 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, 2024 are as follows (in millions).

Year Ending December 31,	Operating Leases		Financing Leases
2025	$	233.2	$	10.7
2026	182.0		7.1
2027	185.0		6.3
2028	182.5		6.1
2029	185.0		6.1
Thereafter	1,089.6		15.3
Total lease payments	2,057.3		51.6
Purchase price for communities subject to acquisition agreements	—		310.0
Reacquisition price in excess of sale-leaseback proceeds	—		(32.8)
Imputed interest and variable lease payments	(772.0)		(45.5)
Other financing obligations	—		20.6
Total lease obligations	$	1,285.3	$	303.9