Leases

3 Months Ended

Mar. 31, 2020

Leases, Capital [Abstract]

Leases

Leases

Lease Income

The following table summarizes the Company’s lease income (dollars in thousands):

	Three Months Ended March 31,
	2020		2019
Fixed income from operating leases	$	253,859	$	237,223
Variable income from operating leases	60,829		56,999
Interest income from direct financing leases	3,269		13,524

Direct Financing Leases

Net investment in DFLs consists of the following (dollars in thousands):

	March 31, 2020			December 31, 2019
Present value of minimum lease payments receivable	$	16,255		$	19,138
Present value of estimated residual value	44,706			84,604
Less deferred selling profits	(16,255		)	(19,138		)
Net investment in direct financing leases before allowance	44,706			84,604
Allowance for direct financing lease losses	—			—
Net investment in direct financing leases	$	44,706		$	84,604
Properties subject to direct financing leases	1			2

Direct Financing Lease Internal Ratings

The following table summarizes the Company’s internal ratings for DFLs at March 31, 2020 (dollars in thousands):

	Carrying Amount		Percentage of DFL Portfolio	Internal Ratings
Segment				Performing DFLs		Watch List DFLs		Workout DFLs
Other non-reportable segments	$	44,706	100	$	44,706	—		—
	$	44,706	100	$	44,706	$	—	$	—

2020 Direct Financing Lease Sale

During the first quarter of 2020, the Company sold a hospital under a DFL for $82 million and recognized a gain on sale of $42 million, which is included in other income (expense), net.

2019 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.

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.

During the three months ended March 31, 2019, income from DFLs and cash payments received were $5.9 million and $4.8 million, respectively, for the DFL Sale Portfolio.

Leases

Leases

Lease Income

The following table summarizes the Company’s lease income (dollars in thousands):

	Three Months Ended March 31,
	2020		2019
Fixed income from operating leases	$	253,859	$	237,223
Variable income from operating leases	60,829		56,999
Interest income from direct financing leases	3,269		13,524

Direct Financing Leases

Net investment in DFLs consists of the following (dollars in thousands):

	March 31, 2020			December 31, 2019
Present value of minimum lease payments receivable	$	16,255		$	19,138
Present value of estimated residual value	44,706			84,604
Less deferred selling profits	(16,255		)	(19,138		)
Net investment in direct financing leases before allowance	44,706			84,604
Allowance for direct financing lease losses	—			—
Net investment in direct financing leases	$	44,706		$	84,604
Properties subject to direct financing leases	1			2

Direct Financing Lease Internal Ratings

The following table summarizes the Company’s internal ratings for DFLs at March 31, 2020 (dollars in thousands):

	Carrying Amount		Percentage of DFL Portfolio	Internal Ratings
Segment				Performing DFLs		Watch List DFLs		Workout DFLs
Other non-reportable segments	$	44,706	100	$	44,706	—		—
	$	44,706	100	$	44,706	$	—	$	—

2020 Direct Financing Lease Sale

During the first quarter of 2020, the Company sold a hospital under a DFL for $82 million and recognized a gain on sale of $42 million, which is included in other income (expense), net.

2019 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.

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.

During the three months ended March 31, 2019, income from DFLs and cash payments received were $5.9 million and $4.8 million, respectively, for the DFL Sale Portfolio.