Leases

6 Months Ended

Jun. 30, 2025

Leases [Abstract]

Leases

7. Leases

As of June 30, 2025, the Company operated 235 communities under long-term leases (226 operating leases and 9 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 substantially all of the Company's 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. The leases generally provide for renewal or extension options, or in certain cases, 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 and net worth 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 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, 2025, 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, 2025 and 2024.

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)	2025		2024		2025		2024
Facility operating expense	$	2,075	$	2,176	$	4,134	$	4,096
Facility lease expense	52,653		50,964		105,527		102,460
Operating lease expense	54,728		53,140		109,661		106,556
Operating lease expense adjustment (1)	4,846		13,483		8,699		26,572
Changes in operating lease assets and liabilities for lessor capital expenditure reimbursements	(9,319)		(1,051)		(11,332)		(1,300)
Operating net cash outflows from operating leases	$	50,255	$	65,572	$	107,028	$	131,828

(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)	2025		2024		2025		2024
Depreciation and amortization	$	709	$	2,898	$	3,234	$	5,770
Interest expense: financing lease obligations	1,750		5,110		7,350		10,171
Financing lease expense	$	2,459	$	8,008	$	10,584	$	15,941
Operating cash outflows from financing leases	$	1,750	$	5,110	$	7,350	$	10,171
Financing cash outflows from financing leases	297		265		586		527
Changes in financing lease assets and liabilities for lessor capital expenditure reimbursement	(5)		—		(5)		—
Total net cash outflows from financing leases	$	2,042	$	5,375	$	7,931	$	10,698

The aggregate amounts of future minimum lease payments (without giving effect to the potential early termination by Ventas, Inc. ("Ventas") of certain of the Company's community leases with maturity dates of December 31, 2025), including community, office, and equipment leases, recognized on the condensed consolidated balance sheet as of June 30, 2025 are as follows (in millions).

Year Ending December 31,	Operating Leases		Financing Leases
2025 (six months)	$	116.7	$	3.6
2026	182.9		7.2
2027	185.9		6.4
2028	183.4		6.3
2029	185.9		6.3
Thereafter	1,093.1		15.5
Total lease payments	1,947.9		45.3
Imputed interest and variable lease payments	(714.3)		(39.9)
Non-cash gain on future sale of property	—		20.7
Total lease obligations	$	1,233.6	$	26.1

Diversified Healthcare Trust Portfolio Acquisition

In September 2024, the Company entered into a definitive agreement to acquire 25 senior living communities that were leased by the Company from Diversified Healthcare Trust for a purchase price of $135.0 million. Effective February 27, 2025, the Company successfully closed the acquisition. The Company funded the acquisition of the 25 communities through proceeds from mortgage financings and cash on hand. Refer to Note 6 for information on the mortgage financing. Previously, these communities were held in a triple-net lease with annualized cash rent payments of $10.2 million and an initial maturity of December 31, 2032.

The leases for the 25 communities were previously classified as operating leases and were prospectively classified as financing leases subsequent to the amendment of the leasing arrangement through the date of acquisition.

Welltower Portfolio Acquisition

In September 2024, the Company entered into a definitive agreement to acquire five senior living communities that were leased by the Company from Welltower Inc. for a purchase price of $175.0 million. Effective February 27, 2025, the Company successfully closed the acquisition. The Company funded the acquisition of the five communities through proceeds from mortgage financings and cash on hand. Refer to Note 6 for information on the mortgage financing. Previously, these communities were held in a triple-net lease with annualized cash rent payments of $13.7 million and an initial maturity of December 31, 2024, which had been extended through the acquisition date.

The definitive agreement included the finalization of the purchase price under the provisions of a purchase option arrangement with a variable price component based upon the fair value of the assets. The leasing arrangements for three of these communities were accounted for as failed sale-leaseback transactions as the Company did not transfer control of the underlying assets under a sale and leaseback arrangement with a purchase option. For the three months ended March 31, 2025, the Company recognized a $32.8 million loss on extinguishment of the financing obligation for the amount by which the repurchase price exceeded the previously recognized financing obligation for such three communities.

Leases

7. Leases

As of June 30, 2025, the Company operated 235 communities under long-term leases (226 operating leases and 9 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 substantially all of the Company's 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. The leases generally provide for renewal or extension options, or in certain cases, 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 and net worth 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 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, 2025, 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, 2025 and 2024.

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)	2025		2024		2025		2024
Facility operating expense	$	2,075	$	2,176	$	4,134	$	4,096
Facility lease expense	52,653		50,964		105,527		102,460
Operating lease expense	54,728		53,140		109,661		106,556
Operating lease expense adjustment (1)	4,846		13,483		8,699		26,572
Changes in operating lease assets and liabilities for lessor capital expenditure reimbursements	(9,319)		(1,051)		(11,332)		(1,300)
Operating net cash outflows from operating leases	$	50,255	$	65,572	$	107,028	$	131,828

(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)	2025		2024		2025		2024
Depreciation and amortization	$	709	$	2,898	$	3,234	$	5,770
Interest expense: financing lease obligations	1,750		5,110		7,350		10,171
Financing lease expense	$	2,459	$	8,008	$	10,584	$	15,941
Operating cash outflows from financing leases	$	1,750	$	5,110	$	7,350	$	10,171
Financing cash outflows from financing leases	297		265		586		527
Changes in financing lease assets and liabilities for lessor capital expenditure reimbursement	(5)		—		(5)		—
Total net cash outflows from financing leases	$	2,042	$	5,375	$	7,931	$	10,698

The aggregate amounts of future minimum lease payments (without giving effect to the potential early termination by Ventas, Inc. ("Ventas") of certain of the Company's community leases with maturity dates of December 31, 2025), including community, office, and equipment leases, recognized on the condensed consolidated balance sheet as of June 30, 2025 are as follows (in millions).

Year Ending December 31,	Operating Leases		Financing Leases
2025 (six months)	$	116.7	$	3.6
2026	182.9		7.2
2027	185.9		6.4
2028	183.4		6.3
2029	185.9		6.3
Thereafter	1,093.1		15.5
Total lease payments	1,947.9		45.3
Imputed interest and variable lease payments	(714.3)		(39.9)
Non-cash gain on future sale of property	—		20.7
Total lease obligations	$	1,233.6	$	26.1

Diversified Healthcare Trust Portfolio Acquisition

In September 2024, the Company entered into a definitive agreement to acquire 25 senior living communities that were leased by the Company from Diversified Healthcare Trust for a purchase price of $135.0 million. Effective February 27, 2025, the Company successfully closed the acquisition. The Company funded the acquisition of the 25 communities through proceeds from mortgage financings and cash on hand. Refer to Note 6 for information on the mortgage financing. Previously, these communities were held in a triple-net lease with annualized cash rent payments of $10.2 million and an initial maturity of December 31, 2032.

The leases for the 25 communities were previously classified as operating leases and were prospectively classified as financing leases subsequent to the amendment of the leasing arrangement through the date of acquisition.

Welltower Portfolio Acquisition

In September 2024, the Company entered into a definitive agreement to acquire five senior living communities that were leased by the Company from Welltower Inc. for a purchase price of $175.0 million. Effective February 27, 2025, the Company successfully closed the acquisition. The Company funded the acquisition of the five communities through proceeds from mortgage financings and cash on hand. Refer to Note 6 for information on the mortgage financing. Previously, these communities were held in a triple-net lease with annualized cash rent payments of $13.7 million and an initial maturity of December 31, 2024, which had been extended through the acquisition date.

The definitive agreement included the finalization of the purchase price under the provisions of a purchase option arrangement with a variable price component based upon the fair value of the assets. The leasing arrangements for three of these communities were accounted for as failed sale-leaseback transactions as the Company did not transfer control of the underlying assets under a sale and leaseback arrangement with a purchase option. For the three months ended March 31, 2025, the Company recognized a $32.8 million loss on extinguishment of the financing obligation for the amount by which the repurchase price exceeded the previously recognized financing obligation for such three communities.