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LEASES
 3 Months Ended
Mar. 31, 2024
Leases [Abstract]  
LEASES LEASES
Operating Leases
The Company leases most of its skilled nursing and assisted living facilities, as well as its office space and certain vehicles and equipment, under various non-cancelable operating lease agreements. These operating leases expire at various dates throughout 2049.
Substantially all operating leases for skilled nursing and assisted living facilities are on a “triple-net” basis, which require lessees to pay for all insurance, repairs, utilities, and real property taxes assessed on the leased property, and most of the leases are guaranteed by the Company and/or its stockholders.
For 12 of the facility operating leases, the Company holds an option to purchase the real estate which can be exercised at varying times until January 31, 2038. At lease inception it was determined that the exercise of these purchase options was not reasonably assured.
The facility leases are generally renewable at the Company’s option for additional terms ranging from 3 to 20 years. All facility leases provide for an additional percentage rent based upon specified rates per the terms of the agreements.
Real estate lease payments are deemed to constitute the right to use the underlying facilities and operate as a skilled nursing facility as permitted by the accompanying license. As the license is deemed to be inseparable from the related real estate in determining value, the payments related to these components have been combined into a single lease obligation representing the right to use the facilities and to operate under the terms of the accompanying license, respectively.
Finance Leases
The Company leases certain skilled nursing and assisted living facilities under finance lease agreements. The economic substance of each lease is that the Company is financing the facilities through the lease. The lease terms of these finance leases allow for a purchase option during a specified window. The Company has determined that it is reasonably certain to exercise the purchase option at the end of each purchase option window. Therefore the Company has calculated the lease term through the end of the purchase option window for each lease. Accordingly, such leases are recorded in the Company’s condensed combined/consolidated financial statements as assets and liabilities.
Finance lease right-of-use assets are included in property and equipment and have a balance of $37,528 and $37,850 as of March 31, 2024 and December 31, 2023, respectively. The current portion of finance lease liabilities is included in other accrued expenses and has a balance of $966 and $942 as of March 31, 2024 and December 31, 2023, respectively. The long-term portion of finance lease liabilities is included in other liabilities and has a balance of $40,526 and $40,766 as of March 31, 2024 and December 31, 2023, respectively.
The components of lease expense were as follows:
Three Months Ended March 31,
20242023
Operating lease expense
Rent - cost of services63,961 $45,104 
General and administrative expense810 356 
Variable lease costs8,914 5,920 
Total operating lease expense$73,685 $51,380 
Finance lease expense
Amortization of right-of-use assets322 308 
Interest on lease liabilities740 132 
Total financing lease expense1,062 440 
Total Lease Expense$74,747 $51,820 
__________________
(1)Rent - cost of services includes other variable lease costs such as Consumer Price Index (CPI) increases and other rent adjustments of $535, and $958 for the three months ended March 31, 2024, and 2023 respectively.
(2)Variable lease costs, including property taxes and insurance, are classified in Cost of services in the Company’s unaudited condensed combined/consolidated statements of income and comprehensive income.
Operating lease expense is included in Rent - cost of services and General and administrative expense as indicated above. For finance lease expense, the amortization of right-of-use assets is included in depreciation and amortization while the interest component is included in interest expense.
The following table summarizes supplemental cash flow information related to leases:
Three Months Ended March 31,
20242023
Operating cash paid for amounts included in the measurement of operating lease liabilities$57,508 $41,163 
Operating cash paid for amounts included in the measurement of finance lease liabilities740 132 
Financing cash paid for amounts included in the measurement of finance lease liabilities216 565 
Operating lease right-of-use assets obtained in exchange for lease liabilities251,247 210,216 
Financing lease right-of-use assets obtained in exchange for lease liabilities
— — 
Information relating to the lease term and discount rate is as follows:
As of March 31, 2024
Weighted-average remaining lease term (years)
Operating leases14
Financing leases3
Weighted-average discount rate
Operating leases5.8 %
Financing leases7.2 %
In determining the discount rate used to measure the right-of-use asset and lease liability, the Company uses rates implicit in the lease, or if not readily available, the Company will use its incremental borrowing rate. The Company’s incremental borrowing rate is based on an estimated secured rate comprised of a risk-free rate plus a credit spread as secured by its assets. Determining a credit spread as secured by the Company’s assets may require significant judgment.
Maturities of lease liabilities as of March 31, 2024 were as follows:
Finance LeasesOperating LeasesTotal
2024 (remainder)$2,887 $176,540 $179,427 
202523,560 235,714 259,274 
20262,241 235,489 237,730 
202717,995 233,590 251,585 
2028782 235,762 236,544 
2029391 237,077 237,468 
Thereafter— 1,947,078 1,947,078 
Total lease payments$47,856 $3,301,250 $3,349,106 
Less: present value discount (6,364)(1,063,768)(1,070,132)
Present value of lease liabilities
$41,492 $2,237,482 $2,278,974 
In addition to its lessee activity, the Company generates an immaterial amount of revenue from arrangements where it is a lessor of certain facilities. Revenue from those arrangements is included in other revenue on the condensed combined/consolidated statements of income and comprehensive income.
LEASES LEASES
Operating Leases
The Company leases most of its skilled nursing and assisted living facilities, as well as its office space and certain vehicles and equipment, under various non-cancelable operating lease agreements. These operating leases expire at various dates throughout 2049.
Substantially all operating leases for skilled nursing and assisted living facilities are on a “triple-net” basis, which require lessees to pay for all insurance, repairs, utilities, and real property taxes assessed on the leased property, and most of the leases are guaranteed by the Company and/or its stockholders.
For 12 of the facility operating leases, the Company holds an option to purchase the real estate which can be exercised at varying times until January 31, 2038. At lease inception it was determined that the exercise of these purchase options was not reasonably assured.
The facility leases are generally renewable at the Company’s option for additional terms ranging from 3 to 20 years. All facility leases provide for an additional percentage rent based upon specified rates per the terms of the agreements.
Real estate lease payments are deemed to constitute the right to use the underlying facilities and operate as a skilled nursing facility as permitted by the accompanying license. As the license is deemed to be inseparable from the related real estate in determining value, the payments related to these components have been combined into a single lease obligation representing the right to use the facilities and to operate under the terms of the accompanying license, respectively.
Finance Leases
The Company leases certain skilled nursing and assisted living facilities under finance lease agreements. The economic substance of each lease is that the Company is financing the facilities through the lease. The lease terms of these finance leases allow for a purchase option during a specified window. The Company has determined that it is reasonably certain to exercise the purchase option at the end of each purchase option window. Therefore the Company has calculated the lease term through the end of the purchase option window for each lease. Accordingly, such leases are recorded in the Company’s condensed combined/consolidated financial statements as assets and liabilities.
Finance lease right-of-use assets are included in property and equipment and have a balance of $37,528 and $37,850 as of March 31, 2024 and December 31, 2023, respectively. The current portion of finance lease liabilities is included in other accrued expenses and has a balance of $966 and $942 as of March 31, 2024 and December 31, 2023, respectively. The long-term portion of finance lease liabilities is included in other liabilities and has a balance of $40,526 and $40,766 as of March 31, 2024 and December 31, 2023, respectively.
The components of lease expense were as follows:
Three Months Ended March 31,
20242023
Operating lease expense
Rent - cost of services63,961 $45,104 
General and administrative expense810 356 
Variable lease costs8,914 5,920 
Total operating lease expense$73,685 $51,380 
Finance lease expense
Amortization of right-of-use assets322 308 
Interest on lease liabilities740 132 
Total financing lease expense1,062 440 
Total Lease Expense$74,747 $51,820 
__________________
(1)Rent - cost of services includes other variable lease costs such as Consumer Price Index (CPI) increases and other rent adjustments of $535, and $958 for the three months ended March 31, 2024, and 2023 respectively.
(2)Variable lease costs, including property taxes and insurance, are classified in Cost of services in the Company’s unaudited condensed combined/consolidated statements of income and comprehensive income.
Operating lease expense is included in Rent - cost of services and General and administrative expense as indicated above. For finance lease expense, the amortization of right-of-use assets is included in depreciation and amortization while the interest component is included in interest expense.
The following table summarizes supplemental cash flow information related to leases:
Three Months Ended March 31,
20242023
Operating cash paid for amounts included in the measurement of operating lease liabilities$57,508 $41,163 
Operating cash paid for amounts included in the measurement of finance lease liabilities740 132 
Financing cash paid for amounts included in the measurement of finance lease liabilities216 565 
Operating lease right-of-use assets obtained in exchange for lease liabilities251,247 210,216 
Financing lease right-of-use assets obtained in exchange for lease liabilities
— — 
Information relating to the lease term and discount rate is as follows:
As of March 31, 2024
Weighted-average remaining lease term (years)
Operating leases14
Financing leases3
Weighted-average discount rate
Operating leases5.8 %
Financing leases7.2 %
In determining the discount rate used to measure the right-of-use asset and lease liability, the Company uses rates implicit in the lease, or if not readily available, the Company will use its incremental borrowing rate. The Company’s incremental borrowing rate is based on an estimated secured rate comprised of a risk-free rate plus a credit spread as secured by its assets. Determining a credit spread as secured by the Company’s assets may require significant judgment.
Maturities of lease liabilities as of March 31, 2024 were as follows:
Finance LeasesOperating LeasesTotal
2024 (remainder)$2,887 $176,540 $179,427 
202523,560 235,714 259,274 
20262,241 235,489 237,730 
202717,995 233,590 251,585 
2028782 235,762 236,544 
2029391 237,077 237,468 
Thereafter— 1,947,078 1,947,078 
Total lease payments$47,856 $3,301,250 $3,349,106 
Less: present value discount (6,364)(1,063,768)(1,070,132)
Present value of lease liabilities
$41,492 $2,237,482 $2,278,974 
In addition to its lessee activity, the Company generates an immaterial amount of revenue from arrangements where it is a lessor of certain facilities. Revenue from those arrangements is included in other revenue on the condensed combined/consolidated statements of income and comprehensive income.