XML 24 R12.htm IDEA: XBRL DOCUMENT v3.19.2
Leases
 6 Months Ended
Jun. 30, 2019
Leases, Capital [Abstract]  
Leases Leases
Lease Income
The following table summarizes the Company’s lease income (dollars in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Fixed income from operating leases
$
237,607

 
$
262,885

 
$
474,830

 
$
526,240

Variable income from operating leases
63,590

 
54,955

 
120,589

 
108,352

Interest income from direct financing leases
10,190

 
13,490

 
23,714

 
26,756


Direct Financing Leases
Net investment in DFLs consists of the following (dollars in thousands):
 
June 30,
2019
Present value of minimum lease payments receivable
$
264,277

Present value of estimated residual value
114,364

Less deferred selling profits
(11,390
)
Net investment in direct financing leases before allowance
367,251

Allowance for direct financing lease losses
(10,147
)
Net investment in direct financing leases
$
357,104

Properties subject to direct financing leases
15


 
December 31,
2018
Minimum lease payments receivable
$
1,013,976

Estimated residual value
507,484

Less unearned income
(807,642
)
Net investment in direct financing leases
$
713,818

Properties subject to direct financing leases
29


Direct Financing Lease Internal Ratings
The following table summarizes the Company’s internal ratings for DFLs at June 30, 2019 (dollars in thousands):
 
 
Carrying
Amount
 
Percentage of
DFL Portfolio
 
Internal Ratings
Segment
 
 
 
Performing DFLs
 
Watch List DFLs
 
Workout DFLs
Senior housing triple-net
 
$
272,500

 
76
 
$
272,500

 
$
—

 
$
—

Other non-reportable segments
 
84,604

 
24
 
84,604

 
—

 
—

 
 
$
357,104

 
100
 
$
357,104

 
$
—

 
$
—


Direct Financing Lease Conversion
During the first quarter of 2019, the Company converted a DFL portfolio of 14 senior housing triple-net properties, previously on “Watch List” status, to a RIDEA structure, requiring the Company to recognize net assets equal to the lower of the net assets’ fair value or the carrying value of the net investment in the DFL. As a result, the Company derecognized the $351 million carrying value of the net investment in DFL related to the 14 properties and recognized a combination of net real estate ($331 million) and net intangibles assets ($20 million) for the same aggregate amount, with no gain or loss recognized. As a result of the transaction, the 14 properties were transitioned from the senior housing triple-net segment to the SHOP segment during the first quarter of 2019.
Pending Direct Financing Lease Sale
During the second quarter of 2019, the Company entered into agreements to sell 13 senior housing facilities under DFLs (the “DFL Sale Portfolio”) for $274 million. Upon entering into the agreements, the Company recognized an allowance for DFL losses and related impairment charge of $10 million to write-down the carrying value of the DFL Sale Portfolio to its fair value. The fair value of the DFL Sale Portfolio is based upon the agreed upon sale price, less estimated costs to sell, which is considered to be a Level 2 measurement within the fair value hierarchy. No previous allowances have been recognized related to the DFL Sale Portfolio.
The following table summarizes the activity of the DFL Sale Portfolio during the periods presented (dollars in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
Income from DFLs
 
$
6,013

 
$
5,782

 
$
11,875

 
$
11,552

Cash payments received
 
5,758

 
4,838

 
10,593

 
9,484


In conjunction with the entering into agreements to sell the DFL Sale Portfolio, the Company placed the portfolio on nonaccrual status and will begin recognizing income equal to the amount of cash received.
Direct Financing Lease Receivable Maturities
The following table summarizes future minimum lease payments contractually due under DFLs at June 30, 2019 (in thousands):
Year
    
Amount
2019 (six months)
 
$
19,577

2020
 
32,558

2021
 
31,989

2022
 
25,346

2023
 
24,774

2024
 
25,393

Thereafter
 
390,893

Undiscounted minimum lease payments receivable
 
550,530

Less: imputed interest
 
(286,253
)
Present value of minimum lease payments receivable
 
$
264,277

The following table summarizes future minimum lease payments contractually due under DFLs at December 31, 2018 (in thousands):
Year
 
Amount
2019
 
$
114,970

2020
 
63,308

2021
 
63,687

2022
 
58,135

2023
 
58,570

Thereafter
 
655,306

 
 
$
1,013,976


Residual Value Risk
Quarterly, the Company reviews the estimated unguaranteed residual value of assets under DFLs to determine if there have been any material changes compared to the prior quarter. As needed, the Company and/or the related tenants will invest necessary funds to maintain the residual value of each asset.
Operating Leases
Future Minimum Rents
The following table summarizes future minimum lease payments to be received, excluding operating expense reimbursements, from tenants under non-cancelable operating leases as of June 30, 2019 (in thousands):
Year
 
Amount
2019 (six months)
 
$
480,607

2020
 
947,697

2021
 
889,007

2022
 
788,835

2023
 
714,922

2024
 
620,603

Thereafter
 
2,024,028

 
 
$
6,465,699

The following table summarizes future minimum lease payments to be received, excluding operating expense reimbursements, from tenants under non-cancelable operating leases as of December 31, 2018 (in thousands):
Year
    
Amount
2019
 
$
971,417

2020
 
928,102

2021
 
853,451

2022
 
751,972

2023
 
675,537

Thereafter
 
2,320,847

 
 
$
6,501,326


Lease Costs
The following tables provide information regarding the Company’s leases to which it is the lessee, such as corporate offices and ground leases (dollars in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
Lease Expense Information:
 
2019
 
2018
 
2019
 
2018
Total lease expense(1)
 
$
4,117

 
$
3,578

 
$
7,996

 
$
7,225

_______________________________________
(1)
Lease expense related to corporate assets is included in general and administrative expenses and lease expense related to ground leases is included within operating expenses in the Company’s consolidated statements of operations.
 
 
Six Months Ended
June 30,
Supplemental Cash Flow Information:
 
2019
 
2018
Cash paid for amounts included in the measurement of lease liability:
 
 
 
 
Operating cash flows for operating leases
 
$
6,235

 
$
5,723

 
 
 
 
 
ROU asset obtained in exchange for new lease liability:
 
 
 
 
Operating leases
 
$
4,084

 
$
—


Weighted Average Lease Term and Discount Rate:
 
June 30,
2019
Weighted average remaining lease term (years):
 
 
Operating leases
 
51

 
 
 
Weighted average discount rate:
 
 
Operating leases
 
4.36
%

The following table summarizes future minimum lease payments under non-cancelable ground and other operating leases included in the Company’s lease liability as of June 30, 2019 (in thousands):
Year
    
Amount
2019 (six months)
 
$
4,781

2020
 
8,934

2021
 
8,568

2022
 
8,228

2023
 
7,915

2024
 
6,761

Thereafter
 
448,712

Undiscounted minimum lease payments included in the lease liability
 
493,899

Less: imputed interest
 
(339,022
)
Present value of lease liability
 
$
154,877


The following table summarizes future minimum lease obligations under non-cancelable ground and other operating leases as of December 31, 2018 (in thousands):
Year
 
Amount
2019
 
$
5,597

2020
 
5,687

2021
 
5,776

2022
 
5,862

2023
 
5,983

Thereafter
 
466,130

 
 
$
495,035


Depreciation Expense
While the Company leases the majority of its property, plant, and equipment to various tenants under operating leases and DFLs, in certain situations, the Company owns and operates certain property, plant, and equipment for general corporate purposes. Corporate assets are recorded within other assets, net within the Company’s consolidated balance sheets and depreciation expense for those assets is recorded in general and administrative expenses in the Company’s consolidated statements of operations. Included within other assets, net as of both June 30, 2019 and December 31, 2018 is $3 million and $2 million, respectively, of accumulated depreciation related to corporate assets. Included within general and administrative expenses for the three months ended June 30, 2019 and 2018 is $0.4 million and $0.2 million, respectively, of depreciation expense related to corporate assets. Included within general and administrative expenses for the six months ended June 30, 2019 and 2018 is $0.9 million and $0.4 million, respectively, of depreciation expense related to corporate assets.
Leases Leases
Lease Income
The following table summarizes the Company’s lease income (dollars in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Fixed income from operating leases
$
237,607

 
$
262,885

 
$
474,830

 
$
526,240

Variable income from operating leases
63,590

 
54,955

 
120,589

 
108,352

Interest income from direct financing leases
10,190

 
13,490

 
23,714

 
26,756


Direct Financing Leases
Net investment in DFLs consists of the following (dollars in thousands):
 
June 30,
2019
Present value of minimum lease payments receivable
$
264,277

Present value of estimated residual value
114,364

Less deferred selling profits
(11,390
)
Net investment in direct financing leases before allowance
367,251

Allowance for direct financing lease losses
(10,147
)
Net investment in direct financing leases
$
357,104

Properties subject to direct financing leases
15


 
December 31,
2018
Minimum lease payments receivable
$
1,013,976

Estimated residual value
507,484

Less unearned income
(807,642
)
Net investment in direct financing leases
$
713,818

Properties subject to direct financing leases
29


Direct Financing Lease Internal Ratings
The following table summarizes the Company’s internal ratings for DFLs at June 30, 2019 (dollars in thousands):
 
 
Carrying
Amount
 
Percentage of
DFL Portfolio
 
Internal Ratings
Segment
 
 
 
Performing DFLs
 
Watch List DFLs
 
Workout DFLs
Senior housing triple-net
 
$
272,500

 
76
 
$
272,500

 
$
—

 
$
—

Other non-reportable segments
 
84,604

 
24
 
84,604

 
—

 
—

 
 
$
357,104

 
100
 
$
357,104

 
$
—

 
$
—


Direct Financing Lease Conversion
During the first quarter of 2019, the Company converted a DFL portfolio of 14 senior housing triple-net properties, previously on “Watch List” status, to a RIDEA structure, requiring the Company to recognize net assets equal to the lower of the net assets’ fair value or the carrying value of the net investment in the DFL. As a result, the Company derecognized the $351 million carrying value of the net investment in DFL related to the 14 properties and recognized a combination of net real estate ($331 million) and net intangibles assets ($20 million) for the same aggregate amount, with no gain or loss recognized. As a result of the transaction, the 14 properties were transitioned from the senior housing triple-net segment to the SHOP segment during the first quarter of 2019.
Pending Direct Financing Lease Sale
During the second quarter of 2019, the Company entered into agreements to sell 13 senior housing facilities under DFLs (the “DFL Sale Portfolio”) for $274 million. Upon entering into the agreements, the Company recognized an allowance for DFL losses and related impairment charge of $10 million to write-down the carrying value of the DFL Sale Portfolio to its fair value. The fair value of the DFL Sale Portfolio is based upon the agreed upon sale price, less estimated costs to sell, which is considered to be a Level 2 measurement within the fair value hierarchy. No previous allowances have been recognized related to the DFL Sale Portfolio.
The following table summarizes the activity of the DFL Sale Portfolio during the periods presented (dollars in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
Income from DFLs
 
$
6,013

 
$
5,782

 
$
11,875

 
$
11,552

Cash payments received
 
5,758

 
4,838

 
10,593

 
9,484


In conjunction with the entering into agreements to sell the DFL Sale Portfolio, the Company placed the portfolio on nonaccrual status and will begin recognizing income equal to the amount of cash received.
Direct Financing Lease Receivable Maturities
The following table summarizes future minimum lease payments contractually due under DFLs at June 30, 2019 (in thousands):
Year
    
Amount
2019 (six months)
 
$
19,577

2020
 
32,558

2021
 
31,989

2022
 
25,346

2023
 
24,774

2024
 
25,393

Thereafter
 
390,893

Undiscounted minimum lease payments receivable
 
550,530

Less: imputed interest
 
(286,253
)
Present value of minimum lease payments receivable
 
$
264,277

The following table summarizes future minimum lease payments contractually due under DFLs at December 31, 2018 (in thousands):
Year
 
Amount
2019
 
$
114,970

2020
 
63,308

2021
 
63,687

2022
 
58,135

2023
 
58,570

Thereafter
 
655,306

 
 
$
1,013,976


Residual Value Risk
Quarterly, the Company reviews the estimated unguaranteed residual value of assets under DFLs to determine if there have been any material changes compared to the prior quarter. As needed, the Company and/or the related tenants will invest necessary funds to maintain the residual value of each asset.
Operating Leases
Future Minimum Rents
The following table summarizes future minimum lease payments to be received, excluding operating expense reimbursements, from tenants under non-cancelable operating leases as of June 30, 2019 (in thousands):
Year
 
Amount
2019 (six months)
 
$
480,607

2020
 
947,697

2021
 
889,007

2022
 
788,835

2023
 
714,922

2024
 
620,603

Thereafter
 
2,024,028

 
 
$
6,465,699

The following table summarizes future minimum lease payments to be received, excluding operating expense reimbursements, from tenants under non-cancelable operating leases as of December 31, 2018 (in thousands):
Year
    
Amount
2019
 
$
971,417

2020
 
928,102

2021
 
853,451

2022
 
751,972

2023
 
675,537

Thereafter
 
2,320,847

 
 
$
6,501,326


Lease Costs
The following tables provide information regarding the Company’s leases to which it is the lessee, such as corporate offices and ground leases (dollars in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
Lease Expense Information:
 
2019
 
2018
 
2019
 
2018
Total lease expense(1)
 
$
4,117

 
$
3,578

 
$
7,996

 
$
7,225

_______________________________________
(1)
Lease expense related to corporate assets is included in general and administrative expenses and lease expense related to ground leases is included within operating expenses in the Company’s consolidated statements of operations.
 
 
Six Months Ended
June 30,
Supplemental Cash Flow Information:
 
2019
 
2018
Cash paid for amounts included in the measurement of lease liability:
 
 
 
 
Operating cash flows for operating leases
 
$
6,235

 
$
5,723

 
 
 
 
 
ROU asset obtained in exchange for new lease liability:
 
 
 
 
Operating leases
 
$
4,084

 
$
—


Weighted Average Lease Term and Discount Rate:
 
June 30,
2019
Weighted average remaining lease term (years):
 
 
Operating leases
 
51

 
 
 
Weighted average discount rate:
 
 
Operating leases
 
4.36
%

The following table summarizes future minimum lease payments under non-cancelable ground and other operating leases included in the Company’s lease liability as of June 30, 2019 (in thousands):
Year
    
Amount
2019 (six months)
 
$
4,781

2020
 
8,934

2021
 
8,568

2022
 
8,228

2023
 
7,915

2024
 
6,761

Thereafter
 
448,712

Undiscounted minimum lease payments included in the lease liability
 
493,899

Less: imputed interest
 
(339,022
)
Present value of lease liability
 
$
154,877


The following table summarizes future minimum lease obligations under non-cancelable ground and other operating leases as of December 31, 2018 (in thousands):
Year
 
Amount
2019
 
$
5,597

2020
 
5,687

2021
 
5,776

2022
 
5,862

2023
 
5,983

Thereafter
 
466,130

 
 
$
495,035


Depreciation Expense
While the Company leases the majority of its property, plant, and equipment to various tenants under operating leases and DFLs, in certain situations, the Company owns and operates certain property, plant, and equipment for general corporate purposes. Corporate assets are recorded within other assets, net within the Company’s consolidated balance sheets and depreciation expense for those assets is recorded in general and administrative expenses in the Company’s consolidated statements of operations. Included within other assets, net as of both June 30, 2019 and December 31, 2018 is $3 million and $2 million, respectively, of accumulated depreciation related to corporate assets. Included within general and administrative expenses for the three months ended June 30, 2019 and 2018 is $0.4 million and $0.2 million, respectively, of depreciation expense related to corporate assets. Included within general and administrative expenses for the six months ended June 30, 2019 and 2018 is $0.9 million and $0.4 million, respectively, of depreciation expense related to corporate assets.
Leases Leases
Lease Income
The following table summarizes the Company’s lease income (dollars in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Fixed income from operating leases
$
237,607

 
$
262,885

 
$
474,830

 
$
526,240

Variable income from operating leases
63,590

 
54,955

 
120,589

 
108,352

Interest income from direct financing leases
10,190

 
13,490

 
23,714

 
26,756


Direct Financing Leases
Net investment in DFLs consists of the following (dollars in thousands):
 
June 30,
2019
Present value of minimum lease payments receivable
$
264,277

Present value of estimated residual value
114,364

Less deferred selling profits
(11,390
)
Net investment in direct financing leases before allowance
367,251

Allowance for direct financing lease losses
(10,147
)
Net investment in direct financing leases
$
357,104

Properties subject to direct financing leases
15


 
December 31,
2018
Minimum lease payments receivable
$
1,013,976

Estimated residual value
507,484

Less unearned income
(807,642
)
Net investment in direct financing leases
$
713,818

Properties subject to direct financing leases
29


Direct Financing Lease Internal Ratings
The following table summarizes the Company’s internal ratings for DFLs at June 30, 2019 (dollars in thousands):
 
 
Carrying
Amount
 
Percentage of
DFL Portfolio
 
Internal Ratings
Segment
 
 
 
Performing DFLs
 
Watch List DFLs
 
Workout DFLs
Senior housing triple-net
 
$
272,500

 
76
 
$
272,500

 
$
—

 
$
—

Other non-reportable segments
 
84,604

 
24
 
84,604

 
—

 
—

 
 
$
357,104

 
100
 
$
357,104

 
$
—

 
$
—


Direct Financing Lease Conversion
During the first quarter of 2019, the Company converted a DFL portfolio of 14 senior housing triple-net properties, previously on “Watch List” status, to a RIDEA structure, requiring the Company to recognize net assets equal to the lower of the net assets’ fair value or the carrying value of the net investment in the DFL. As a result, the Company derecognized the $351 million carrying value of the net investment in DFL related to the 14 properties and recognized a combination of net real estate ($331 million) and net intangibles assets ($20 million) for the same aggregate amount, with no gain or loss recognized. As a result of the transaction, the 14 properties were transitioned from the senior housing triple-net segment to the SHOP segment during the first quarter of 2019.
Pending Direct Financing Lease Sale
During the second quarter of 2019, the Company entered into agreements to sell 13 senior housing facilities under DFLs (the “DFL Sale Portfolio”) for $274 million. Upon entering into the agreements, the Company recognized an allowance for DFL losses and related impairment charge of $10 million to write-down the carrying value of the DFL Sale Portfolio to its fair value. The fair value of the DFL Sale Portfolio is based upon the agreed upon sale price, less estimated costs to sell, which is considered to be a Level 2 measurement within the fair value hierarchy. No previous allowances have been recognized related to the DFL Sale Portfolio.
The following table summarizes the activity of the DFL Sale Portfolio during the periods presented (dollars in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
Income from DFLs
 
$
6,013

 
$
5,782

 
$
11,875

 
$
11,552

Cash payments received
 
5,758

 
4,838

 
10,593

 
9,484


In conjunction with the entering into agreements to sell the DFL Sale Portfolio, the Company placed the portfolio on nonaccrual status and will begin recognizing income equal to the amount of cash received.
Direct Financing Lease Receivable Maturities
The following table summarizes future minimum lease payments contractually due under DFLs at June 30, 2019 (in thousands):
Year
    
Amount
2019 (six months)
 
$
19,577

2020
 
32,558

2021
 
31,989

2022
 
25,346

2023
 
24,774

2024
 
25,393

Thereafter
 
390,893

Undiscounted minimum lease payments receivable
 
550,530

Less: imputed interest
 
(286,253
)
Present value of minimum lease payments receivable
 
$
264,277

The following table summarizes future minimum lease payments contractually due under DFLs at December 31, 2018 (in thousands):
Year
 
Amount
2019
 
$
114,970

2020
 
63,308

2021
 
63,687

2022
 
58,135

2023
 
58,570

Thereafter
 
655,306

 
 
$
1,013,976


Residual Value Risk
Quarterly, the Company reviews the estimated unguaranteed residual value of assets under DFLs to determine if there have been any material changes compared to the prior quarter. As needed, the Company and/or the related tenants will invest necessary funds to maintain the residual value of each asset.
Operating Leases
Future Minimum Rents
The following table summarizes future minimum lease payments to be received, excluding operating expense reimbursements, from tenants under non-cancelable operating leases as of June 30, 2019 (in thousands):
Year
 
Amount
2019 (six months)
 
$
480,607

2020
 
947,697

2021
 
889,007

2022
 
788,835

2023
 
714,922

2024
 
620,603

Thereafter
 
2,024,028

 
 
$
6,465,699

The following table summarizes future minimum lease payments to be received, excluding operating expense reimbursements, from tenants under non-cancelable operating leases as of December 31, 2018 (in thousands):
Year
    
Amount
2019
 
$
971,417

2020
 
928,102

2021
 
853,451

2022
 
751,972

2023
 
675,537

Thereafter
 
2,320,847

 
 
$
6,501,326


Lease Costs
The following tables provide information regarding the Company’s leases to which it is the lessee, such as corporate offices and ground leases (dollars in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
Lease Expense Information:
 
2019
 
2018
 
2019
 
2018
Total lease expense(1)
 
$
4,117

 
$
3,578

 
$
7,996

 
$
7,225

_______________________________________
(1)
Lease expense related to corporate assets is included in general and administrative expenses and lease expense related to ground leases is included within operating expenses in the Company’s consolidated statements of operations.
 
 
Six Months Ended
June 30,
Supplemental Cash Flow Information:
 
2019
 
2018
Cash paid for amounts included in the measurement of lease liability:
 
 
 
 
Operating cash flows for operating leases
 
$
6,235

 
$
5,723

 
 
 
 
 
ROU asset obtained in exchange for new lease liability:
 
 
 
 
Operating leases
 
$
4,084

 
$
—


Weighted Average Lease Term and Discount Rate:
 
June 30,
2019
Weighted average remaining lease term (years):
 
 
Operating leases
 
51

 
 
 
Weighted average discount rate:
 
 
Operating leases
 
4.36
%

The following table summarizes future minimum lease payments under non-cancelable ground and other operating leases included in the Company’s lease liability as of June 30, 2019 (in thousands):
Year
    
Amount
2019 (six months)
 
$
4,781

2020
 
8,934

2021
 
8,568

2022
 
8,228

2023
 
7,915

2024
 
6,761

Thereafter
 
448,712

Undiscounted minimum lease payments included in the lease liability
 
493,899

Less: imputed interest
 
(339,022
)
Present value of lease liability
 
$
154,877


The following table summarizes future minimum lease obligations under non-cancelable ground and other operating leases as of December 31, 2018 (in thousands):
Year
 
Amount
2019
 
$
5,597

2020
 
5,687

2021
 
5,776

2022
 
5,862

2023
 
5,983

Thereafter
 
466,130

 
 
$
495,035


Depreciation Expense
While the Company leases the majority of its property, plant, and equipment to various tenants under operating leases and DFLs, in certain situations, the Company owns and operates certain property, plant, and equipment for general corporate purposes. Corporate assets are recorded within other assets, net within the Company’s consolidated balance sheets and depreciation expense for those assets is recorded in general and administrative expenses in the Company’s consolidated statements of operations. Included within other assets, net as of both June 30, 2019 and December 31, 2018 is $3 million and $2 million, respectively, of accumulated depreciation related to corporate assets. Included within general and administrative expenses for the three months ended June 30, 2019 and 2018 is $0.4 million and $0.2 million, respectively, of depreciation expense related to corporate assets. Included within general and administrative expenses for the six months ended June 30, 2019 and 2018 is $0.9 million and $0.4 million, respectively, of depreciation expense related to corporate assets.