Leases

6 Months Ended

Jun. 30, 2022

Leases

Leases

4. Leases

The Company follows ASC 842, as discussed in Note 1 – Summary of Significant Accounting Policies, the Company has elected the package of practical expedients offered in the transition guidance which allows management not to reassess the lease identification, lease classification, and initial direct costs. The Company has elected the accounting policy practical expedient to exclude recording short term leases for all asset classes, as right-of-use assets, and lease liabilities on the unaudited condensed consolidated balance sheet. Finally, the Company has elected to recognize lease components and non-lease components separately for real estate leases.

Leases for Memory Care Facilities

The Company leases three memory care facilities from MHI-MC San Antonio, LP, MHI-MC Little Rock, LP, and MHI-MC New Braunfels, LP (collectively “MHI entities”) under three separate lease agreements and originally recorded a right of use asset and a lease liability of $35,782,153. The Amended Leases contain three options to renew, which were not considered reasonably certain of being exercised as of the lease commencement date nor the balance sheet date.

As of June 30, 2022, the Company leased the memory care Simpsonville Facility from MC-Simpsonville, SC-1-UT, LLC (the “Simpsonville Landlord”) under a 15-year non-cancelable lease agreement. Beginning January 2019, the Company ceased paying the Simpsonville Landlord rent. The Landlord filed a lawsuit against the guarantors of the lease and on October 21, 2020. During the third quarter of 2022, the Company and the Simpsonville Landlord terminated this lease and agreed to settle this litigation. See Note 7 – Commitments and Contingencies for additional information.

All leases are classified as operating leases. The Company does not have any leases within its non-core business. Therefore, no right-of-use assets or lease liabilities were recorded within non-current assets held for sale or lease liability on the unaudited condensed consolidated balance sheet following the adoption of ASC 842. Weighted-average remaining lease terms and discount rate as of June 30, 2022, are 13.5 years and 8.25%, respectively.

Clearday, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Lease Costs

For the three & six months ended June 30, 2022 and 2021, the lease costs recorded in the unaudited condensed consolidated statement of operations are as follows:

	For the Three Months Ended June 30,
	2022		2021
Lease costs:
Operating lease costs	$	1,104,608	$	1,357,497
Short-term lease costs		8,100	$	7,434
Total lease costs	$	1,112,708	$	1,364,932

	For the Six Months Ended June 30,
	2022		2021
Lease costs:
Operating lease costs	$	2,293,753	$	2,487,040
Short-term lease costs		19,094	$	25,922
Total lease costs	$	2,312,847	$	2,512,961

Operating Lease Payments

The following table summarizes the maturity of the Company’s operating lease liabilities as of June 30, 2022:

Year Ending	Operating Leases
2022 (Remaining of 2022)	$	2,014,996
2023		4,114,830
2024		4,211,665
2025		4,310,799
2026		4,412,289
2027		4,516,191
Thereafter		40,289,687
Total minimum lease payments	$	63,870,457
Less: amounts representing interest		26,736,067
Present value of future minimum lease payments		37,134,391
Less: current portion		1,041,859
Non-current lease liabilities	$	36,092,532