Leases

9 Months Ended

Sep. 30, 2024

Lessee

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.

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


		Nine Months Ended
	Classification	September 30, 2024		September 30, 2023
Operating lease cost: (1)
Real estate lease expense	Property operating expenses	$	17,837	$	16,663
Non-real estate investment lease expense	General and administrative expenses	4,838		5,392
Finance lease cost:
Amortization of leased assets	Property operating expenses	3,278		4,774
Interest on lease liabilities	Interest expense	2,923		3,008
Sublease income	Rental income	—		(3,933)
Total		$	28,876	$	25,904

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

Supplemental balance sheet information related to leases in which we are the lessee is as follows (in thousands):


	Classification	September 30, 2024		December 31, 2023
Right of use assets:
Operating leases - real estate	Right of use assets, net	$	280,295	$	283,293
Finance leases - real estate	Right of use assets, net	77,865		67,676
Real estate right of use assets, net		358,160		350,969
Operating leases - non-real estate investments	Receivables and other assets	8,734		11,338

Total right of use assets, net		$	366,894	$	362,307

Lease liabilities:
Operating leases		$	301,046	$	303,553
Finance leases		91,314		79,677
Total		$	392,360	$	383,230

Leases

Lessee

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


		Nine Months Ended
	Classification	September 30, 2024		September 30, 2023
Operating lease cost: (1)
Real estate lease expense	Property operating expenses	$	17,837	$	16,663
Non-real estate investment lease expense	General and administrative expenses	4,838		5,392
Finance lease cost:
Amortization of leased assets	Property operating expenses	3,278		4,774
Interest on lease liabilities	Interest expense	2,923		3,008
Sublease income	Rental income	—		(3,933)
Total		$	28,876	$	25,904

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

Supplemental balance sheet information related to leases in which we are the lessee is as follows (in thousands):


	Classification	September 30, 2024		December 31, 2023
Right of use assets:
Operating leases - real estate	Right of use assets, net	$	280,295	$	283,293
Finance leases - real estate	Right of use assets, net	77,865		67,676
Real estate right of use assets, net		358,160		350,969
Operating leases - non-real estate investments	Receivables and other assets	8,734		11,338

Total right of use assets, net		$	366,894	$	362,307

Lease liabilities:
Operating leases		$	301,046	$	303,553
Finance leases		91,314		79,677
Total		$	392,360	$	383,230

Leases

Lessor

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. During the nine months ended September 30, 2024, we wrote off previously recognized straight-line rent receivable and unamortized lease incentive balances of $97,674,000 through a reduction of rental income, which related to leases for which the collection of substantially all contractual lease payments was no longer probable due primarily to agreements reached to convert Triple-net leased properties to Seniors Housing Operating RIDEA structures (see Note 19). During the nine months ended September 30, 2023, we wrote off previously recognized straight-line rent receivable and unamortized lease incentive balances of $12,309,000 for which collection was no longer deemed probable.

Leases in our Triple-net and Outpatient Medical portfolios recognized under ASC 842, "Leases" ("ASC 842"), typically include some form of operating expense reimbursement by the tenant. For the nine months ended September 30, 2024, we recognized $1,183,949,000 of rental income related to operating leases, of which $165,863,000 was for variable lease payments that primarily represents the reimbursement of operating costs such as common area maintenance expenses, utilities, insurance and real estate taxes. For the nine months ended September 30, 2023, we recognized $1,152,005,000 of rental income related to operating leases, of which $163,980,000 was for variable lease payments.

For the majority of our Seniors Housing Operating segment, revenue from resident fees and services is predominantly service-based, and as such, resident agreements are accounted for under ASC 606, "Revenue from Contracts with Customers." Within that reportable segment, we also recognize revenue from residential seniors apartment leases in accordance with ASC 842. The amount of revenue related to these leases was $417,490,000 and $341,172,000 for the nine months ended September 30, 2024 and 2023, respectively.

For sales-type leases, we record any selling profit or loss arising from leases at inception within gain (loss) on real estate dispositions and acquisitions of controlling interests, net in the Consolidated Statements of Comprehensive Income. The investments in sales-type leases, net represents the lease receivable, the components of which are the future lease payments and any guaranteed or unguaranteed residual value for the underlying assets expected at the end of the lease term, measured at the net present value discounted using a rate implicit in the lease. Interest income is recognized in the Consolidated Statements of Comprehensive Income over the lease term using the effective interest method.

On September 30, 2024, we reached agreements with our tenant to sell 15 properties, which are included in two master leases previously classified as operating leases. As a result of the agreement to sell the properties, the two leases were classified as sales-type leases in accordance with ASC 842 and a gain of $92,593,000 was recognized in gains (losses) on real estate dispositions and acquisitions of controlling interests, net in the Consolidated Statements of Comprehensive Income.