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Leases

9 Months Ended

Sep. 30, 2019

We lease land, buildings, office space and certain equipment. Many of our leases include a renewal option to extend the term from one to 25 years or more. Renewal options that we are reasonably certain to exercise are recognized in our right-of-use assets and lease liabilities. As most of our leases do not provide a rate implicit in the lease agreement, we use our incremental borrowing rate available at lease commencement to determine the present value of lease payments. The incremental borrowing rates were determined using our longer term borrowing rates (actual pricing through 30 years, as well as other longer-term market rates). For leases that commenced prior to January 1, 2019, we used the incremental borrowing rate on December 31, 2018.

We sublease certain real estate to a third party. Our sublease portfolio consists of a finance lease with Genesis HealthCare for seven buildings.

The components of lease expense were as follows for the period presented (in thousands):



	Classification	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease cost: ⁽¹⁾
Real estate lease expense	Property operating expenses	$	3,647		$	18,326
Non-real estate lease expense	General and administrative expenses	516			1,286
Finance lease cost:
Amortization of leased assets	Property operating expenses	2,304			6,549
Interest on lease liabilities	Interest expense	1,328			3,497
Sublease income	Rental income	(1,043		)	(3,130		)
Total		$	6,752		$	26,528

⁽¹⁾ Includes short-term leases which are immaterial.

Maturities of lease liabilities as of September 30, 2019 are as follows (in thousands):



	Operating Leases			Finance Leases
2019	$	5,040		$	2,511
2020	19,873			9,121
2021	19,781			8,787
2022	18,594			8,161
2023	18,559			69,244
Thereafter	1,107,479			94,590
Total lease payments	1,189,326			192,414
Less: Imputed interest	(845,411		)	(81,791		)
Total present value of lease liabilities	$	343,915		$	110,623

Supplemental balance sheet information related to leases was as follows as of September 30, 2019 (in thousands, except lease terms and discount rate):



	Classification	September 30, 2019
Right of use assets:
Operating leases - real estate	Right of use assets, net	$	372,831
Finance leases - real estate	Right of use assets, net	163,858
Real estate right of use assets, net		536,689
Operating leases - corporate	Receivables and other assets	4,711
Total right of use assets, net		$	541,400

Lease liabilities:
Operating leases		$	343,915
Financing leases		110,623
Total		$	454,538

Weighted average remaining lease term (years):
Operating leases		48.0
Finance leases		16.3

Weighted average discount rate:
Operating leases		5.19		%
Finance leases		5.17		%

Supplemental cash flow information related to leases was as follows for the date indicated (in thousands):



	Classification	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Decrease (increase) in receivables and other assets	$	4,858
Operating cash flows from operating leases	Increase (decrease) in accrued expenses and other liabilities	(4,949		)
Operating cash flows from finance leases	Decrease (increase) in receivables and other assets	8,241
Financing cash flows from finance leases	Other financing activities	(2,487		)

Substantially all of our operating leases in which we are the lessor contain escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectability assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period. Leases in our Outpatient Medical portfolio typically include some form of operating expense reimbursement by the tenant. We recognized $1,178,817,000 of rental and other revenues related to operating leases, of which $147,815,000 was for variable lease payments, for the nine months ended September 30, 2019, which primarily represents the reimbursement of operating costs such as common area maintenance expenses, utilities, insurance and real estate taxes. The following table sets forth the future minimum lease payments receivable for leases in effect at September 30, 2019 (excluding properties in our Seniors Housing Operating partnerships and excluding any operating expense reimbursements) (in thousands):



2019	$	344,158
2020	1,356,086
2021	1,324,256
2022	1,296,077
2023	1,239,804
Thereafter	9,576,700
Totals	$	15,137,081

Leases

We sublease certain real estate to a third party. Our sublease portfolio consists of a finance lease with Genesis HealthCare for seven buildings.

The components of lease expense were as follows for the period presented (in thousands):



	Classification	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease cost: ⁽¹⁾
Real estate lease expense	Property operating expenses	$	3,647		$	18,326
Non-real estate lease expense	General and administrative expenses	516			1,286
Finance lease cost:
Amortization of leased assets	Property operating expenses	2,304			6,549
Interest on lease liabilities	Interest expense	1,328			3,497
Sublease income	Rental income	(1,043		)	(3,130		)
Total		$	6,752		$	26,528

⁽¹⁾ Includes short-term leases which are immaterial.

Maturities of lease liabilities as of September 30, 2019 are as follows (in thousands):



	Operating Leases			Finance Leases
2019	$	5,040		$	2,511
2020	19,873			9,121
2021	19,781			8,787
2022	18,594			8,161
2023	18,559			69,244
Thereafter	1,107,479			94,590
Total lease payments	1,189,326			192,414
Less: Imputed interest	(845,411		)	(81,791		)
Total present value of lease liabilities	$	343,915		$	110,623

Supplemental balance sheet information related to leases was as follows as of September 30, 2019 (in thousands, except lease terms and discount rate):



	Classification	September 30, 2019
Right of use assets:
Operating leases - real estate	Right of use assets, net	$	372,831
Finance leases - real estate	Right of use assets, net	163,858
Real estate right of use assets, net		536,689
Operating leases - corporate	Receivables and other assets	4,711
Total right of use assets, net		$	541,400

Lease liabilities:
Operating leases		$	343,915
Financing leases		110,623
Total		$	454,538

Weighted average remaining lease term (years):
Operating leases		48.0
Finance leases		16.3

Weighted average discount rate:
Operating leases		5.19		%
Finance leases		5.17		%

Supplemental cash flow information related to leases was as follows for the date indicated (in thousands):



	Classification	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Decrease (increase) in receivables and other assets	$	4,858
Operating cash flows from operating leases	Increase (decrease) in accrued expenses and other liabilities	(4,949		)
Operating cash flows from finance leases	Decrease (increase) in receivables and other assets	8,241
Financing cash flows from finance leases	Other financing activities	(2,487		)



2019	$	344,158
2020	1,356,086
2021	1,324,256
2022	1,296,077
2023	1,239,804
Thereafter	9,576,700
Totals	$	15,137,081

Leases

We sublease certain real estate to a third party. Our sublease portfolio consists of a finance lease with Genesis HealthCare for seven buildings.

The components of lease expense were as follows for the period presented (in thousands):



	Classification	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease cost: ⁽¹⁾
Real estate lease expense	Property operating expenses	$	3,647		$	18,326
Non-real estate lease expense	General and administrative expenses	516			1,286
Finance lease cost:
Amortization of leased assets	Property operating expenses	2,304			6,549
Interest on lease liabilities	Interest expense	1,328			3,497
Sublease income	Rental income	(1,043		)	(3,130		)
Total		$	6,752		$	26,528

⁽¹⁾ Includes short-term leases which are immaterial.

Maturities of lease liabilities as of September 30, 2019 are as follows (in thousands):



	Operating Leases			Finance Leases
2019	$	5,040		$	2,511
2020	19,873			9,121
2021	19,781			8,787
2022	18,594			8,161
2023	18,559			69,244
Thereafter	1,107,479			94,590
Total lease payments	1,189,326			192,414
Less: Imputed interest	(845,411		)	(81,791		)
Total present value of lease liabilities	$	343,915		$	110,623

Supplemental balance sheet information related to leases was as follows as of September 30, 2019 (in thousands, except lease terms and discount rate):



	Classification	September 30, 2019
Right of use assets:
Operating leases - real estate	Right of use assets, net	$	372,831
Finance leases - real estate	Right of use assets, net	163,858
Real estate right of use assets, net		536,689
Operating leases - corporate	Receivables and other assets	4,711
Total right of use assets, net		$	541,400

Lease liabilities:
Operating leases		$	343,915
Financing leases		110,623
Total		$	454,538

Weighted average remaining lease term (years):
Operating leases		48.0
Finance leases		16.3

Weighted average discount rate:
Operating leases		5.19		%
Finance leases		5.17		%

Supplemental cash flow information related to leases was as follows for the date indicated (in thousands):



	Classification	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Decrease (increase) in receivables and other assets	$	4,858
Operating cash flows from operating leases	Increase (decrease) in accrued expenses and other liabilities	(4,949		)
Operating cash flows from finance leases	Decrease (increase) in receivables and other assets	8,241
Financing cash flows from finance leases	Other financing activities	(2,487		)



2019	$	344,158
2020	1,356,086
2021	1,324,256
2022	1,296,077
2023	1,239,804
Thereafter	9,576,700
Totals	$	15,137,081