Leases (Lessee)

3 Months Ended

Mar. 31, 2019

10. Leases (Lessee)

We have leased land on which certain of our facilities reside, along with corporate office and equipment. Our leases have remaining lease terms of 5.3 years to 42.5 years, some of which may include options to extend the leases up to, or just beyond, the depreciable life of the properties that occupy the leased land. Renewal options that we are reasonably certain to exercise are recognized in our right-of-use assets and lease liabilities. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at lease commencement date in determining the present value of future payments.

Properties subject to ground leases are subleased to our tenants, except for three Adeptus transition properties.

The following is a summary of our lease expense (in thousands):

	Classification	Three Months Ended March 31, 2019
Operating lease cost (1)	(2)	$	2,096
Finance lease cost:
Amortization of right-of-use assets	Real estate depreciation and amortization		13
Interest on lease liabilities	Interest expense		21
Sublease income	Interest and other income		(900	)
Total lease cost		$	1,230

(1)

Includes short-term leases.

(2)

$1.6 million included in Property-related, with the remainder reflected in General and administrative expenses.

Fixed minimum payments due over the remaining lease term under non-cancelable leases of more than one year and amounts to be received in the future from non-cancelable subleases over their remaining lease term at March 31, 2019 are as follows (amounts in thousands):

	Operating leases			Finance leases			Amounts to be received from subleases			Net payments
2019 (1)	$	4,598		$	93		$	(2,542	)	$	2,149
2020		6,437			125			(3,456	)		3,106
2021		6,606			126			(3,561	)		3,171
2022		6,750			128			(3,715	)		3,163
2023		6,815			129			(3,719	)		3,225
Thereafter		196,788			5,045			(95,320	)		106,513	(2)
Total undiscounted minimum lease payments	$	227,994		$	5,646		$	(112,313	)	$	121,327
Less: interest		(146,478	)		(3,717	)
Present value of lease liabilities	$	81,516		$	1,929

(1)

Represents remaining nine months of 2019.

(2)

Reflects certain ground leases, in which we are the lessee, that have longer initial fixed terms than our existing sublease to our tenants. However, we would expect to either renew the related sublease, enter into a lease with a new tenant or early terminate the ground lease to reduce or avoid any significant impact from such ground leases.

Supplemental balance sheet information is as follows (in thousands, except lease terms and discount rate):

	Classification	March 31, 2019
Right of use assets:
Operating leases - real estate	Land, buildings and improvements, intangible lease assets, and other	$	64,995
Finance leases - real estate	Land, buildings and improvements, intangible lease assets, and other		1,939
Real estate right of use assets, net			66,934
Operating leases - corporate	Other assets		11,419
Total right of use assets, net		$	78,353

Lease liabilities:
Operating leases	Obligations to tenants and other lease liabilities	$	81,516
Financing leases	Obligations to tenants and other lease liabilities		1,929
Total lease liabilities		$	83,445

Weighted average remaining lease term:
Operating leases			32.2
Finance leases			37.7
Weighted average discount rate:
Operating leases			6.3	%
Finance leases			6.6	%

The following is supplemental cash flow information (in thousands):

	Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,459
Operating cash flows from finance leases		10
Financing cash flows from finance leases		21
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		1,042
Finance leases		—