Leases

9 Months Ended

Sep. 30, 2020

Leases [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,
	2020		2019		2020		2019
Fixed income from operating leases	$	262,558	$	255,447	$	770,327	$	730,277
Variable income from operating leases	63,972		57,153		183,254		177,742
Interest income from direct financing leases	2,150		9,590		7,569		33,304

Direct Financing Leases

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

	September 30, 2020		December 31, 2019
Present value of minimum lease payments receivable	$	11,955	$	19,138
Present value of estimated residual value	44,706		84,604
Less deferred selling profits	(11,955)		(19,138)
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 September 30, 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 transferred 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 was 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.

For the DFL Sale Portfolio, during the three and nine months ended September 30, 2019, income from DFLs was $5 million and $17 million, respectively, and cash payments received were $5 million and $16 million, respectively.

Lease Costs

The following table provides supplemental cash flow information regarding the Company’s leases for which it is the lessee, such as ground leases (dollars in thousands):

	Nine Months Ended September 30,
Supplemental Cash Flow Information:	2020		2019
Right-of-use asset obtained in exchange for new lease liability:
Operating leases	$	24,984	$	4,084

COVID-19 Rent Deferrals

During the second and third quarters of 2020, the Company agreed to defer rent from certain tenants in the medical office segment, with the requirement that all deferred rent be repaid by the end of 2020. Under this program, through September 30, 2020, approximately $6 million of rent was deferred for the medical office segment, of which $3 million remained outstanding as of September 30, 2020.

Additionally, through September 30, 2020, the Company granted approximately $1 million of rent deferrals to certain tenants in the life science segment, an immaterial amount of which remained outstanding as of September 30, 2020.

The rent deferrals granted are probable of collection and do not impact the pattern of revenue recognition or amount of revenue recognized (refer to Note 2 for additional information).

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,
	2020		2019		2020		2019
Fixed income from operating leases	$	262,558	$	255,447	$	770,327	$	730,277
Variable income from operating leases	63,972		57,153		183,254		177,742
Interest income from direct financing leases	2,150		9,590		7,569		33,304

Direct Financing Leases

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

	September 30, 2020		December 31, 2019
Present value of minimum lease payments receivable	$	11,955	$	19,138
Present value of estimated residual value	44,706		84,604
Less deferred selling profits	(11,955)		(19,138)
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 September 30, 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 transferred 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 was 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.

For the DFL Sale Portfolio, during the three and nine months ended September 30, 2019, income from DFLs was $5 million and $17 million, respectively, and cash payments received were $5 million and $16 million, respectively.

Lease Costs

The following table provides supplemental cash flow information regarding the Company’s leases for which it is the lessee, such as ground leases (dollars in thousands):

	Nine Months Ended September 30,
Supplemental Cash Flow Information:	2020		2019
Right-of-use asset obtained in exchange for new lease liability:
Operating leases	$	24,984	$	4,084

COVID-19 Rent Deferrals

During the second and third quarters of 2020, the Company agreed to defer rent from certain tenants in the medical office segment, with the requirement that all deferred rent be repaid by the end of 2020. Under this program, through September 30, 2020, approximately $6 million of rent was deferred for the medical office segment, of which $3 million remained outstanding as of September 30, 2020.

Additionally, through September 30, 2020, the Company granted approximately $1 million of rent deferrals to certain tenants in the life science segment, an immaterial amount of which remained outstanding as of September 30, 2020.

The rent deferrals granted are probable of collection and do not impact the pattern of revenue recognition or amount of revenue recognized (refer to Note 2 for additional information).