REAL ESTATE PROPERTIES HELD FOR INVESTMENT

12 Months Ended

Dec. 31, 2019

Real Estate Investments, Net [Abstract]

REAL ESTATE PROPERTIES HELD FOR INVESTMENT

The Company’s real estate properties held for investment consisted of the following (dollars in thousands):

As of December 31, 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	296	33,290	$	3,701,666	$	(306,565	)	$	3,395,101
Senior Housing - Leased ⁽¹⁾	62	3,820	630,688		(72,278		)	558,410
Senior Housing - Managed ⁽¹⁾	46	4,809	907,771		(112,893		)	794,878
Specialty Hospitals and Other	25	1,193	639,721		(47,124		)	592,597
	429	43,112	5,879,846		(538,860		)	5,340,986
Corporate Level			737		(353		)	384
			$	5,880,583	$	(539,213	)	$	5,341,370

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 year ended December 31, 2019, the Company transitioned 21 senior housing communities to its Senior Housing - Managed portfolio.



	December 31, 2019			December 31, 2018
Building and improvements	$	5,042,435		$	5,388,102
Furniture and equipment	239,229			237,145
Land improvements	1,534			1,254
Land	597,385			629,382
	5,880,583			6,255,883
Accumulated depreciation	(539,213		)	(402,338		)
	$	5,341,370		$	5,853,545

Operating Leases

As of December 31, 2019, the substantial majority of the Company’s real estate properties (excluding 46 Senior Housing - Managed communities) were leased under triple-net operating leases with expirations ranging from less than one year to 15 years. As of December 31, 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 or other parties related to the lessee. Security deposits received in cash related to tenant leases are included in accounts payable and accrued liabilities on the accompanying consolidated balance sheets and totaled $10.5 million and $12.4 million as of December 31, 2019 and 2018, respectively, and letters of credit deposited with the Company totaled approximately $83 million and $98 million as of December 31, 2019 and 2018, respectively. In addition, the Company’s tenants have deposited with the Company $14.3 million and $17.5 million as of December 31, 2019 and 2018, respectively, for future real estate taxes, insurance expenditures and tenant improvements related to the Company’s properties and their operations.

As of December 31, 2018, the Company had a $1.3 million reserve for unpaid cash rental income and a $35.8 million reserve associated with accumulated straight-line rental income. Upon adoption of Topic 842 on January 1, 2019, if at any time the Company cannot determine that it is probable that substantially all rents over the life of a lease are collectible, rental revenue will be recognized only to the extent of payments received, and all receivables associated with the lease will be written off irrespective of amounts expected to be collectible. As such, the Company no longer records reserves for unpaid cash rental income or accumulated straight-line rental income.

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 year ended December 31, 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 subsequently sold the remaining two facilities previously operated by Senior Care Centers (one

during the fourth quarter of 2019 and one in January 2020). During the year ended December 31, 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. As of December 31, 2019, the Company adjusted its contractual indemnification obligations estimate down to $8.8 million.

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 and 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 year ended December 31, 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 December 31, 2019



2020	$	428,101
2021	427,791
2022	404,568
2023	389,810
2024	380,944
Thereafter	1,672,008
	$	3,703,222

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 $0.8 million, $0.5 million and $0.3 million for the years ended December 31, 2019, 2018 and 2017, respectively.