XML 82 R13.htm IDEA: XBRL DOCUMENT v3.19.3
Leases
 9 Months Ended
Sep. 30, 2019
Leases, Capital [Abstract]  
Leases Leases
Lease Income
The following table summarizes the Company’s lease income (dollars in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Fixed income from operating leases
$
255,447

 
$
246,148

 
$
730,277

 
$
772,388

Variable income from operating leases
57,153

 
57,706

 
177,742

 
166,058

Interest income from direct financing leases
9,590

 
13,573

 
33,304

 
40,329


Direct Financing Leases
Net investment in DFLs consists of the following (dollars in thousands):
 
September 30,
2019
Present value of minimum lease payments receivable
$
23,316

Present value of estimated residual value
84,604

Less deferred selling profits
(23,316
)
Net investment in direct financing leases before allowance
84,604

Allowance for direct financing lease losses
—

Net investment in direct financing leases
$
84,604

Properties subject to direct financing leases
2


 
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 September 30, 2019 (dollars in thousands):
 
 
Carrying
Amount
 
Percentage of
DFL Portfolio
 
Internal Ratings
Segment
 
 
 
Performing DFLs
 
Watch List DFLs
 
Workout DFLs
Other non-reportable segments
 
$
84,604

 
100
 
$
84,604

 
—

 
—

 
 
$
84,604

 
100
 
$
84,604

 
$
—

 
$
—


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.
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 was 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. In conjunction with the entering into agreements to sell the DFL Sale Portfolio, the Company placed the portfolio on nonaccrual status and began recognizing income equal to the amount of cash received.
The Company completed the sale of the DFL Sale Portfolio in September 2019.
The following table summarizes the activity of the DFL Sale Portfolio during the periods presented (dollars in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
2019
 
2018
Income from DFLs
 
$
5,412

 
$
5,868

 
$
17,287

 
$
17,420

Cash payments received
 
5,412

 
5,634

 
16,005

 
15,118


Direct Financing Lease Receivable Maturities
The following table summarizes future minimum lease payments contractually due under DFLs at September 30, 2019 (in thousands):
Year
    
Amount
2019 (three months)
 
$
4,177

2020
 
9,554

2021
 
8,409

2022
 
1,176

2023
 
—

2024
 
—

Thereafter
 
—

Undiscounted minimum lease payments receivable
 
23,316

Less: imputed interest
 
—

Present value of minimum lease payments receivable
 
$
23,316

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 September 30, 2019 (in thousands):
Year
 
Amount
2019 (three months)
 
$
247,606

2020
 
996,835

2021
 
958,669

2022
 
860,278

2023
 
782,443

2024
 
683,528

Thereafter
 
2,353,307

 
 
$
6,882,666

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
September 30,
 
Nine Months Ended
September 30,
Lease Expense Information:
 
2019
 
2018
 
2019
 
2018
Total lease expense(1)
 
$
4,343

 
$
3,947

 
$
12,764

 
$
11,351

_______________________________________
(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.
 
 
Nine Months Ended
September 30,
Supplemental Cash Flow Information:
 
2019
 
2018
Cash paid for amounts included in the measurement of lease liability:
 
 
 
 
Operating cash flows for operating leases
 
$
10,134

 
$
9,132

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

 
$
—


Weighted Average Lease Term and Discount Rate:
 
September 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 September 30, 2019 (in thousands):
Year
    
Amount
2019 (three months)
 
$
2,391

2020
 
9,322

2021
 
8,958

2022
 
8,770

2023
 
8,542

2024
 
6,798

Thereafter
 
451,675

Undiscounted minimum lease payments included in the lease liability
 
496,456

Less: imputed interest
 
(340,159
)
Present value of lease liability
 
$
156,297


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 September 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 September 30, 2019 and 2018 is $0.4 million and $0.3 million, respectively, of depreciation expense related to corporate assets. Included within general and administrative expenses for the nine months ended September 30, 2019 and 2018 is $1.3 million and $0.7 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
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Fixed income from operating leases
$
255,447

 
$
246,148

 
$
730,277

 
$
772,388

Variable income from operating leases
57,153

 
57,706

 
177,742

 
166,058

Interest income from direct financing leases
9,590

 
13,573

 
33,304

 
40,329


Direct Financing Leases
Net investment in DFLs consists of the following (dollars in thousands):
 
September 30,
2019
Present value of minimum lease payments receivable
$
23,316

Present value of estimated residual value
84,604

Less deferred selling profits
(23,316
)
Net investment in direct financing leases before allowance
84,604

Allowance for direct financing lease losses
—

Net investment in direct financing leases
$
84,604

Properties subject to direct financing leases
2


 
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 September 30, 2019 (dollars in thousands):
 
 
Carrying
Amount
 
Percentage of
DFL Portfolio
 
Internal Ratings
Segment
 
 
 
Performing DFLs
 
Watch List DFLs
 
Workout DFLs
Other non-reportable segments
 
$
84,604

 
100
 
$
84,604

 
—

 
—

 
 
$
84,604

 
100
 
$
84,604

 
$
—

 
$
—


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.
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 was 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. In conjunction with the entering into agreements to sell the DFL Sale Portfolio, the Company placed the portfolio on nonaccrual status and began recognizing income equal to the amount of cash received.
The Company completed the sale of the DFL Sale Portfolio in September 2019.
The following table summarizes the activity of the DFL Sale Portfolio during the periods presented (dollars in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
2019
 
2018
Income from DFLs
 
$
5,412

 
$
5,868

 
$
17,287

 
$
17,420

Cash payments received
 
5,412

 
5,634

 
16,005

 
15,118


Direct Financing Lease Receivable Maturities
The following table summarizes future minimum lease payments contractually due under DFLs at September 30, 2019 (in thousands):
Year
    
Amount
2019 (three months)
 
$
4,177

2020
 
9,554

2021
 
8,409

2022
 
1,176

2023
 
—

2024
 
—

Thereafter
 
—

Undiscounted minimum lease payments receivable
 
23,316

Less: imputed interest
 
—

Present value of minimum lease payments receivable
 
$
23,316

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 September 30, 2019 (in thousands):
Year
 
Amount
2019 (three months)
 
$
247,606

2020
 
996,835

2021
 
958,669

2022
 
860,278

2023
 
782,443

2024
 
683,528

Thereafter
 
2,353,307

 
 
$
6,882,666

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
September 30,
 
Nine Months Ended
September 30,
Lease Expense Information:
 
2019
 
2018
 
2019
 
2018
Total lease expense(1)
 
$
4,343

 
$
3,947

 
$
12,764

 
$
11,351

_______________________________________
(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.
 
 
Nine Months Ended
September 30,
Supplemental Cash Flow Information:
 
2019
 
2018
Cash paid for amounts included in the measurement of lease liability:
 
 
 
 
Operating cash flows for operating leases
 
$
10,134

 
$
9,132

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

 
$
—


Weighted Average Lease Term and Discount Rate:
 
September 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 September 30, 2019 (in thousands):
Year
    
Amount
2019 (three months)
 
$
2,391

2020
 
9,322

2021
 
8,958

2022
 
8,770

2023
 
8,542

2024
 
6,798

Thereafter
 
451,675

Undiscounted minimum lease payments included in the lease liability
 
496,456

Less: imputed interest
 
(340,159
)
Present value of lease liability
 
$
156,297


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 September 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 September 30, 2019 and 2018 is $0.4 million and $0.3 million, respectively, of depreciation expense related to corporate assets. Included within general and administrative expenses for the nine months ended September 30, 2019 and 2018 is $1.3 million and $0.7 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
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Fixed income from operating leases
$
255,447

 
$
246,148

 
$
730,277

 
$
772,388

Variable income from operating leases
57,153

 
57,706

 
177,742

 
166,058

Interest income from direct financing leases
9,590

 
13,573

 
33,304

 
40,329


Direct Financing Leases
Net investment in DFLs consists of the following (dollars in thousands):
 
September 30,
2019
Present value of minimum lease payments receivable
$
23,316

Present value of estimated residual value
84,604

Less deferred selling profits
(23,316
)
Net investment in direct financing leases before allowance
84,604

Allowance for direct financing lease losses
—

Net investment in direct financing leases
$
84,604

Properties subject to direct financing leases
2


 
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 September 30, 2019 (dollars in thousands):
 
 
Carrying
Amount
 
Percentage of
DFL Portfolio
 
Internal Ratings
Segment
 
 
 
Performing DFLs
 
Watch List DFLs
 
Workout DFLs
Other non-reportable segments
 
$
84,604

 
100
 
$
84,604

 
—

 
—

 
 
$
84,604

 
100
 
$
84,604

 
$
—

 
$
—


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.
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 was 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. In conjunction with the entering into agreements to sell the DFL Sale Portfolio, the Company placed the portfolio on nonaccrual status and began recognizing income equal to the amount of cash received.
The Company completed the sale of the DFL Sale Portfolio in September 2019.
The following table summarizes the activity of the DFL Sale Portfolio during the periods presented (dollars in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
2019
 
2018
Income from DFLs
 
$
5,412

 
$
5,868

 
$
17,287

 
$
17,420

Cash payments received
 
5,412

 
5,634

 
16,005

 
15,118


Direct Financing Lease Receivable Maturities
The following table summarizes future minimum lease payments contractually due under DFLs at September 30, 2019 (in thousands):
Year
    
Amount
2019 (three months)
 
$
4,177

2020
 
9,554

2021
 
8,409

2022
 
1,176

2023
 
—

2024
 
—

Thereafter
 
—

Undiscounted minimum lease payments receivable
 
23,316

Less: imputed interest
 
—

Present value of minimum lease payments receivable
 
$
23,316

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 September 30, 2019 (in thousands):
Year
 
Amount
2019 (three months)
 
$
247,606

2020
 
996,835

2021
 
958,669

2022
 
860,278

2023
 
782,443

2024
 
683,528

Thereafter
 
2,353,307

 
 
$
6,882,666

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
September 30,
 
Nine Months Ended
September 30,
Lease Expense Information:
 
2019
 
2018
 
2019
 
2018
Total lease expense(1)
 
$
4,343

 
$
3,947

 
$
12,764

 
$
11,351

_______________________________________
(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.
 
 
Nine Months Ended
September 30,
Supplemental Cash Flow Information:
 
2019
 
2018
Cash paid for amounts included in the measurement of lease liability:
 
 
 
 
Operating cash flows for operating leases
 
$
10,134

 
$
9,132

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

 
$
—


Weighted Average Lease Term and Discount Rate:
 
September 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 September 30, 2019 (in thousands):
Year
    
Amount
2019 (three months)
 
$
2,391

2020
 
9,322

2021
 
8,958

2022
 
8,770

2023
 
8,542

2024
 
6,798

Thereafter
 
451,675

Undiscounted minimum lease payments included in the lease liability
 
496,456

Less: imputed interest
 
(340,159
)
Present value of lease liability
 
$
156,297


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 September 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 September 30, 2019 and 2018 is $0.4 million and $0.3 million, respectively, of depreciation expense related to corporate assets. Included within general and administrative expenses for the nine months ended September 30, 2019 and 2018 is $1.3 million and $0.7 million, respectively, of depreciation expense related to corporate assets.