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REAL ESTATE PROPERTIES HELD FOR INVESTMENT
 9 Months Ended
Sep. 30, 2019
Real Estate Investments, Net [Abstract]  
REAL ESTATE PROPERTIES HELD FOR INVESTMENT REAL ESTATE PROPERTIES HELD FOR INVESTMENT
The Company’s real estate properties held for investment consisted of the following (dollars in thousands):
As of September 30, 2019
Property Type
 
Number of
Properties
 
Number of
Beds/Units
 
Total
Real Estate
at Cost
 
Accumulated
Depreciation
 
Total
Real Estate
Investments, Net
Skilled Nursing/Transitional Care
 
304

 
33,879

 
$
3,711,702

 
$
(285,138
)
 
$
3,426,564

Senior Housing - Leased (1)
 
62

 
4,011

 
636,273

 
(72,716
)
 
563,557

Senior Housing - Managed (1)
 
44

 
4,470

 
863,130

 
(101,426
)
 
761,704

Specialty Hospitals and Other
 
24

 
1,193

 
635,928

 
(43,146
)
 
592,782

 
 
434

 
43,553

 
5,847,033

 
(502,426
)
 
5,344,607

Corporate Level
 
 
 
 
 
741

 
(351
)
 
390

 
 
 
 
 
 
$
5,847,774

 
$
(502,777
)
 
$
5,344,997

As of December 31, 2018
Property Type
 
Number of
Properties
 
Number of
Beds/Units
 
Total
Real Estate
at Cost
 
Accumulated
Depreciation
 
Total
Real Estate
Investments, Net
Skilled Nursing/Transitional Care
 
335

 
37,628

 
$
4,094,484

 
$
(224,942
)
 
$
3,869,542

Senior Housing - Leased (1)
 
90

 
7,332

 
1,237,790

 
(125,902
)
 
1,111,888

Senior Housing - Managed (1)
 
23

 
1,603

 
301,739

 
(19,537
)
 
282,202

Specialty Hospitals and Other
 
22

 
1,085

 
621,236

 
(31,640
)
 
589,596

 
 
470

 
47,648

 
6,255,249

 
(402,021
)
 
5,853,228

Corporate Level
 
 
 
 
 
634

 
(317
)
 
317

 
 
 
 
 
 
$
6,255,883

 
$
(402,338
)
 
$
5,853,545

(1) During the nine months ended September 30, 2019, the Company transitioned 21 senior housing communities to its Senior Housing - Managed portfolio.
 
September 30, 2019
 
December 31, 2018
Building and improvements
$
5,018,346

 
$
5,388,102

Furniture and equipment
235,762

 
237,145

Land improvements
1,415

 
1,254

Land
592,251

 
629,382

 
5,847,774

 
6,255,883

Accumulated depreciation
(502,777
)
 
(402,338
)
 
$
5,344,997

 
$
5,853,545


Operating Leases
As of September 30, 2019, the substantial majority of the Company’s real estate properties (excluding 44 Senior Housing - Managed communities) were leased under triple-net operating leases with expirations ranging from less than one year to 15 years. As of September 30, 2019, the leases had a weighted-average remaining term of eight years. The leases generally include provisions to extend the lease terms and other negotiated terms and conditions. The Company, through its subsidiaries, retains substantially all of the risks and benefits of ownership of the real estate assets leased to the tenants. The Company may receive additional security under these operating leases in the form of letters of credit and security deposits from the lessee or guarantees from the parent of the lessee. Security deposits received in cash related to tenant leases are included in accounts payable and accrued liabilities on the accompanying condensed consolidated balance sheets and totaled $7.9 million and $12.4 million as of September 30, 2019 and December 31, 2018, respectively, and letters of credit deposited with the Company totaled approximately $83 million and $98 million as of September 30, 2019 and December 31, 2018, respectively. In addition, the Company’s tenants have deposited with the Company $14.1 million and $17.5 million as of September 30, 2019 and December 31, 2018, respectively, for future real estate taxes, insurance expenditures and tenant improvements related to the Company’s properties and their operations.
On February 15, 2019, the Company entered into a settlement agreement with Senior Care Centers in connection with the notices of default and lease termination issued by the Company to Senior Care Centers during the third quarter of 2018. In accordance with the order entered by the bankruptcy court in March 2019, the settlement agreement provided for the discharge by the Company of its claims against Senior Care Centers in exchange for $9.5 million of settlement payments, a portion of which was applied to pay post-petition rent. The Company recorded $6.2 million of such post-petition rent during the nine months ended September 30, 2019. On April 1, 2019, the Company completed the sale of 28 facilities (26 skilled nursing/transitional care facilities and two senior housing communities) previously operated by Senior Care Centers and received gross sales proceeds of $282.5 million. In connection with the sale, the Company entered into an agreement to indemnify the buyer from certain costs, expenses and liabilities related to the historical operations of the facilities by Senior Care Centers. In May 2019, the Company transitioned eight facilities previously operated by Senior Care Centers to a current operator in the Sabra portfolio, and the Company expects to sell the remaining two facilities previously operated by Senior Care Centers. During the nine months ended September 30, 2019, the Company recorded an impairment charge of $95.2 million related to the Senior Care Centers facilities, which includes $10.2 million related to the Company’s estimated contractual indemnification obligations.
On December 19, 2018, the Company entered into a letter of intent to terminate its triple-net master lease with Holiday Retirement (“Holiday”) with respect to all 21 senior housing communities subject to the master lease (the “Holiday
Communities”) and concurrently enter into management agreements pursuant to which Holiday would manage the Holiday Communities. On April 1, 2019, the Company completed the conversion of the Holiday Communities to its Senior Housing - Managed portfolio and recognized lease termination income of $66.9 million, which includes a $57.2 million lease termination payment received in exchange for terminating the Holiday master lease and a $9.7 million gain related to the assumption of fixed assets net of liabilities.
The Company monitors the creditworthiness of its tenants by reviewing credit ratings (if available) and evaluating the ability of the tenants to meet their lease obligations to the Company based on the tenants’ financial performance, including the evaluation of any parent guarantees (or the guarantees of other related parties) of tenant lease obligations. As formal credit ratings may not be available for most of the Company’s tenants, the primary basis for the Company’s evaluation of the credit quality of its tenants (and more specifically the tenant’s ability to pay their rent obligations to the Company) is the tenant’s lease coverage ratio or the parent’s fixed charge coverage ratio for those entities with a parent guarantee. These coverage ratios include earnings before interest, taxes, depreciation, amortization and rent (“EBITDAR”) to rent and earnings before interest, taxes, depreciation, amortization, rent and management fees (“EBITDARM”) to rent at the lease level and consolidated EBITDAR to total fixed charges at the parent guarantor level when such a guarantee exists. The Company obtains various financial and operational information from its tenants each month and reviews this information in conjunction with the above-described coverage metrics to identify financial and operational trends, evaluate the impact of the industry’s operational and financial environment (including the impact of government reimbursement), and evaluate the management of the tenant’s operations. These metrics help the Company identify potential areas of concern relative to its tenants’ credit quality and ultimately the tenant’s ability to generate sufficient liquidity to meet its obligations, including its obligation to continue to pay the rent due to the Company.
For the three and nine months ended September 30, 2019, no tenant relationship represented 10% or more of the Company’s total revenues.
The future minimum rental payments from the Company’s properties held for investment under non-cancelable operating leases were as follows and may materially differ from actual future rental payments received (in thousands):
As of September 30, 2019
October 1 through December 31, 2019
$
109,663

2020
425,610

2021
422,465

2022
398,608

2023
381,472

Thereafter
2,023,764

 
$
3,761,582

 
 
 

As of December 31, 2018
2019
$
465,766

2020
456,207

2021
452,346

2022
454,216

2023
437,277

Thereafter
2,407,064

 
$
4,672,876

 
 

Senior Housing - Managed Communities
The Company’s Senior Housing - Managed communities offer residents certain ancillary services that are not contemplated in the lease with each resident (i.e., housekeeping, laundry, guest meals, etc.). These services are provided and paid for in addition to the standard services included in each resident lease (i.e., room and board, standard meals, etc.). The Company bills residents for ancillary services one month in arrears and recognizes revenue as the services are provided, as the Company has no continuing performance obligation related to those services. Resident fees and services includes ancillary
service revenue of $0.2 million and $0.5 million for the three and nine months ended September 30, 2019, respectively, and $0.1 million and $0.4 million for the three and nine months ended September 30, 2018, respectively.