LEASES

6 Months Ended

Jun. 30, 2021

LEASESThe Company’s independent operating subsidiaries lease 54 senior living communities and its administrative offices under non-cancelable operating leases, most of which have initial lease terms ranging from five to 21 years. Most of these leases contain renewal options, most involve rent increases and none contain purchase options. The lease term excludes lease renewals because the renewal rents are not at a bargain, there are no economic penalties for the Company to renew the lease, and it is not reasonably certain that the Company will exercise the extension options. As of June 30, 2021, the Company’s independent operating subsidiaries leased 31 communities from subsidiaries of Ensign (the “Ensign Leases”) under a master lease arrangement. The existing leases with subsidiaries of Ensign are generally for initial terms of between 14 to 20 years. In addition to rent, each of the operating companies are required to pay the following: (1) all impositions and taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); (2) all utilities and other services necessary

or appropriate for the leased properties and the business conducted on the leased properties; (3) all insurance required in connection with the leased properties and the business conducted on the leased properties; (4) all community maintenance and repair costs; and (5) all fees in connection with any licenses or authorizations necessary or appropriate for the leased properties and the business conducted on the leased properties.

Fifteen of the Company’s affiliated senior living communities, excluding the communities that are operated under the Ensign Leases (as defined herein), are operated under two separate master lease arrangements. Under these master leases, a breach at a single community could subject one or more of the other communities covered by the same master lease to the same default risk. Failure to comply with Medicare and Medicaid provider requirements is a default under several of the Company’s leases and master leases. With an indivisible lease, it is difficult to restructure the composition of the portfolio or economic terms of the master lease without the consent of the landlord.

The components of operating lease cost, are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Operating Lease Costs:
Facility Rent—cost of services	$	8,957	$	8,892	$	17,792	$	17,748
Office Rent—cost of services	1,199		949		2,329		1,799
Sublease Income	—		(74)		—		(74)
Rent—cost of services	$	10,156	$	9,767	$	20,121	$	19,473

General and administrative expense	$	77	$	27	$	141	$	57
Variable lease cost (a)	$	1,490	$	1,347	$	2,989	$	2,676


(a)						Represents variable lease cost for operating leases, which costs include property taxes and insurance, common area maintenance, and consumer price index increases, incurred as part of our triple net lease, and which is included in cost of services for the three and six months ended June 30, 2021 and 2020.

The following table shows the lease maturity analysis for all leases as of June 30, 2021, for the years ended December 31:


Year	Amount
2021 (Remainder)	$	19,603
2022	38,630
2023	37,673
2024	36,663
2025	35,739
Thereafter	356,870
Total lease payments	525,178
Less: present value adjustments	(218,785)
Present value of total lease liabilities	306,393
Less: current lease liabilities	(15,233)
Long-term operating lease liabilities	$	291,160

Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company used its incremental borrowing rate based on the information available at each lease’s commencement date to determine each lease's operating lease liability. As of June 30, 2021, the weighted average remaining lease term is 14.5 years and the weighted average discount rate is 8.2%.