RELATED PARTY TRANSACTIONS AND NET PARENT INVESTMENT

3 Months Ended

Mar. 31, 2020

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS AND NET PARENT INVESTMENT

RELATED PARTY TRANSACTIONS AND NET PARENT INVESTMENT

The Interim Financial Statements include a combination of stand-alone and combined business functions between Ensign and the Company’s subsidiaries prior to the Spin-Off. The Company leases 30 of its senior living communities from subsidiaries of Ensign, each of the leases have a term of between 14 and 16 years from the lease commencement date. The total amount of rent expense included in Rent - cost of services paid to subsidiaries of Ensign was $3,101, and $2,693, for the three months ended March 31, 2020 and 2019, respectively.

Certain related party activity, unrelated to the transition services agreement described below, occurred as the Company’s subsidiaries received services from Ensign’s subsidiaries. Services included in cost of services were $1,022, and $715, for the three months ended March 31, 2020 and 2019, respectively.

Transactions that have occurred, prior to the Spin-Off, between subsidiaries of the Company and subsidiaries of Ensign are considered to be effectively settled at the time the transaction is recorded. The net effect of these transactions, including the cash management, is included in the Condensed Consolidated and Combined Statements of Cash Flows as “Net investment from/(to) Parent”.

Other related party activity with Ensign

On October 1, 2019, in connection with the Spin-Off, Pennant entered into several agreements with Ensign that set forth the principal actions taken or to be taken in connection with the Spin-Off and govern the relationship of the parties following the Spin-Off, including the following:

•Master Separation Agreement: The Master Separation Agreement provides for the allocation of assets and liabilities between the Company and Ensign and establishes certain rights and obligations between the parties following the Distribution (the “Master Separation Agreement”);

•Transition Services Agreement: The Transition Services Agreement provides that for a limited time, Ensign is to provide the Company, and the Company is to provide Ensign, with certain services to ensure an orderly transition following the Spin-Off, including: human resources, accounting, legal and compliance, IT, office facilities, and other general support. Generally, the term for the provision of services under the agreement extends for no longer than two years after the Spin-Off, subject to certain rights of the parties to extend the term for an additional five months. To the extent transition services are utilized during the first two years after the Spin-Off, the charges paid by the recipient for the services are generally provided at their market value. Subject to certain conditions, the services may be terminated by the service-receiving party or by mutual written consent (the “Transition Services Agreement”). The Company has incurred $1,336 in costs, net of the Company’s payroll reimbursement, related to the Transitions Services Agreement for the three months ended March 31, 2020;

•Tax Matters Agreement: The Tax Matters Agreement provides that Pennant is responsible for indemnifying Ensign for a percentage of tax liabilities related to the Spin-Off and adjustments to the combined entity in the pre-distribution period (the “Tax Matters Agreement"). It also provides that Pennant will reimburse Ensign for tax benefits Pennant recognizes in connection with certain Pennant share based awards held by Ensign employees. The Company has recognized an immaterial amount in tax benefits related to the Tax Matters Agreement for the three months ended March 31, 2020 and has recorded a payable to Ensign in connection with this amount;

•Employee Matters Agreement: The Employee Matters Agreement governs the parties’ obligations with respect to certain employee-related liabilities and certain employee benefit plans, programs, policies and other related matters for employees of Pennant (the “Employee Matters Agreement”); and

•Master Lease Agreement: The Master Lease Agreement governs the owned real property and leased space allocated to Ensign or the Company, or in certain cases shared by Ensign and us, as the case may be, in a manner that is consistent with the different business uses and needs of Ensign and us (the “Master Lease Agreement”).