Leases

3 Months Ended

Mar. 31, 2019

Leases, Capital [Abstract]

Leases

Leases

Lease Income

The following table summarizes the Company’s lease income:

	Three Months Ended March 31,
	2019		2018
Operating lease income	$	294,222	$	316,752
Interest income on direct financing leases	13,524		13,266

Direct Financing Leases

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

	March 31, 2019
Present value of minimum lease payments receivable	$	273,629
Present value of estimated residual value	114,364
Less deferred selling profits	(24,598		)
Net investment in direct financing leases	$	363,395
Properties subject to direct financing leases	15

	December 31, 2018
Minimum lease payments receivable	$	1,013,976
Estimated residual value	507,484
Less unearned income	(807,642		)
Net investment in direct financing leases	$	713,818
Properties subject to direct financing leases	29

Direct Financing Lease Internal Ratings

The following table summarizes the Company’s internal ratings for DFLs at March 31, 2019 (dollars in thousands):

	Carrying Amount		Percentage of DFL Portfolio	Internal Ratings
Segment				Performing DFLs		Watch List DFLs		Workout DFLs
Senior housing triple-net	$	278,791	77	$	278,791	$	—	$	—
Other non-reportable segments	84,604		23	84,604		—		—
	$	363,395	100	$	363,395	$	—	$	—

Beginning September 30, 2013, the Company placed a 14-property senior housing triple-net DFL (the “DFL Watchlist Portfolio”) on nonaccrual status and “Watch List” status. The Company determined that the collection of all rental payments was and continues to be no longer reasonably assured; therefore, rental revenue for the DFL Watchlist Portfolio is being recognized on a cash basis. During the three months ended March 31, 2019 and 2018, the Company recognized income from DFLs of $4 million and $3 million, respectively. During the three months ended March 31, 2019 and 2018, the Company received cash payments of $5 million from the DFL Watchlist Portfolio. The carrying value of the DFL Watchlist Portfolio was zero and $351 million at March 31, 2019 and December 31, 2018, respectively.

Direct Financing Lease Transition

During the first quarter of 2019, the Company transitioned the DFL Watchlist Portfolio 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 transitioned from the senior housing triple-net segment to the SHOP segment during the first quarter of 2019.

Direct Financing Lease Receivable Maturities

The following table summarizes future minimum lease payments contractually due under DFLs at March 31, 2019 (in thousands):

Year	Amount
2019 (nine months)	$	29,365
2020	32,558
2021	31,989
2022	25,346
2023	24,774
Thereafter	416,286
Undiscounted minimum lease payments receivable	560,318
Less: imputed interest	(286,689		)
Present value of minimum lease payments receivable	$	273,629

The following table summarizes future minimum lease payments contractually due under DFLs at December 31, 2018 (in thousands):

Year	Amount
2019	$	114,970
2020	63,308
2021	63,687
2022	58,135
2023	58,570
Thereafter	655,306
	$	1,013,976

Residual Value Risk

Quarterly, the Company reviews the estimated unguaranteed residual value of assets under DFLs to determine if there have been any material changes compared to the prior quarter. As needed, the Company and/or the related tenants will invest necessary funds to maintain the residual value of each asset.

Operating Leases

Future Minimum Rents

The following table summarizes future minimum lease payments to be received, excluding operating expense reimbursements, from tenants under non-cancelable operating leases as of March 31, 2019 (in thousands):

Year	Amount
2019 (nine months)	$	733,816
2020	952,756
2021	884,923
2022	782,066
2023	703,054
Thereafter	2,505,848
	$	6,562,463

The following table summarizes future minimum lease payments to be received, excluding operating expense reimbursements, from tenants under non-cancelable operating leases as of December 31, 2018 (in thousands):

Year	Amount
2019	$	971,417
2020	928,102
2021	853,451
2022	751,972
2023	675,537
Thereafter	2,320,847
	$	6,501,326

Lease Costs

The following tables provide information regarding the Company’s leases to which it is the lessee, such as corporate offices and ground leases (dollars in thousands):

	Three Months Ended March 31,
Lease Expense Information:	2019		2018
Total lease expense(1)	$	4,803	$	5,024

_______________________________________

(1) Lease expense related to corporate assets is included in general and administrative expenses and lease expense related to ground leases is included within operating expenses in the Company’s consolidated statements of operations.

	Three Months Ended March 31,
Supplemental Cash Flow Information:	2019		2018
Cash paid for amounts included in the measurement of lease liability:
Operating cash flows for operating leases	$	3,963	$	4,253
ROU asset obtained in exchange for new lease liability:
Operating leases	$	880	$	—

Weighted Average Lease Term and Discount Rate:	March 31, 2019
Weighted average remaining lease term (years):
Operating leases	52
Weighted average discount rate:
Operating leases	4.36	%

The following table summarizes future minimum lease obligations under non-cancelable ground and other operating leases as of March 31, 2019 (in thousands):

Year	Amount
2019 (nine months)	$	5,937
2020	7,816
2021	7,888
2022	8,028
2023	8,198
Thereafter	471,083
Undiscounted minimum lease payments payable	508,950
Less: imputed interest	(356,113		)
Present value of lease liability	$	152,837

The following table summarizes future minimum lease obligations under non-cancelable ground and other operating leases as of December 31, 2018 (in thousands):

Year	Amount
2019	$	5,597
2020	5,687
2021	5,776
2022	5,862
2023	5,983
Thereafter	466,130
	$	495,035

Depreciation Expense

While the Company leases the majority of its property, plant, and equipment to various tenants under operating leases and DFLs, in certain situations, the Company owns and operates property, plant, and equipment for general corporate purposes. Corporate assets are recorded within other assets, net within the Company’s consolidated balance sheets and depreciation expense for those assets is recorded in general and administrative expenses in the Company’s consolidated statements of operations. Included within other assets, net as of both March 31, 2019 and December 31, 2018 is $3 million and $2 million, respectively, of accumulated depreciation related to corporate assets. Included within general and administrative expenses for the three months ended March 31, 2019 and 2018 is $0.4 million and $0.2 million, respectively, of depreciation expense related to corporate assets.

Leases

Leases

Lease Income

The following table summarizes the Company’s lease income:

	Three Months Ended March 31,
	2019		2018
Operating lease income	$	294,222	$	316,752
Interest income on direct financing leases	13,524		13,266

Direct Financing Leases

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

	March 31, 2019
Present value of minimum lease payments receivable	$	273,629
Present value of estimated residual value	114,364
Less deferred selling profits	(24,598		)
Net investment in direct financing leases	$	363,395
Properties subject to direct financing leases	15

	December 31, 2018
Minimum lease payments receivable	$	1,013,976
Estimated residual value	507,484
Less unearned income	(807,642		)
Net investment in direct financing leases	$	713,818
Properties subject to direct financing leases	29

Direct Financing Lease Internal Ratings

The following table summarizes the Company’s internal ratings for DFLs at March 31, 2019 (dollars in thousands):

	Carrying Amount		Percentage of DFL Portfolio	Internal Ratings
Segment				Performing DFLs		Watch List DFLs		Workout DFLs
Senior housing triple-net	$	278,791	77	$	278,791	$	—	$	—
Other non-reportable segments	84,604		23	84,604		—		—
	$	363,395	100	$	363,395	$	—	$	—

Beginning September 30, 2013, the Company placed a 14-property senior housing triple-net DFL (the “DFL Watchlist Portfolio”) on nonaccrual status and “Watch List” status. The Company determined that the collection of all rental payments was and continues to be no longer reasonably assured; therefore, rental revenue for the DFL Watchlist Portfolio is being recognized on a cash basis. During the three months ended March 31, 2019 and 2018, the Company recognized income from DFLs of $4 million and $3 million, respectively. During the three months ended March 31, 2019 and 2018, the Company received cash payments of $5 million from the DFL Watchlist Portfolio. The carrying value of the DFL Watchlist Portfolio was zero and $351 million at March 31, 2019 and December 31, 2018, respectively.

Direct Financing Lease Transition

During the first quarter of 2019, the Company transitioned the DFL Watchlist Portfolio 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 transitioned from the senior housing triple-net segment to the SHOP segment during the first quarter of 2019.

Direct Financing Lease Receivable Maturities

The following table summarizes future minimum lease payments contractually due under DFLs at March 31, 2019 (in thousands):

Year	Amount
2019 (nine months)	$	29,365
2020	32,558
2021	31,989
2022	25,346
2023	24,774
Thereafter	416,286
Undiscounted minimum lease payments receivable	560,318
Less: imputed interest	(286,689		)
Present value of minimum lease payments receivable	$	273,629

The following table summarizes future minimum lease payments contractually due under DFLs at December 31, 2018 (in thousands):

Year	Amount
2019	$	114,970
2020	63,308
2021	63,687
2022	58,135
2023	58,570
Thereafter	655,306
	$	1,013,976

Residual Value Risk

Quarterly, the Company reviews the estimated unguaranteed residual value of assets under DFLs to determine if there have been any material changes compared to the prior quarter. As needed, the Company and/or the related tenants will invest necessary funds to maintain the residual value of each asset.

Operating Leases

Future Minimum Rents

The following table summarizes future minimum lease payments to be received, excluding operating expense reimbursements, from tenants under non-cancelable operating leases as of March 31, 2019 (in thousands):

Year	Amount
2019 (nine months)	$	733,816
2020	952,756
2021	884,923
2022	782,066
2023	703,054
Thereafter	2,505,848
	$	6,562,463

The following table summarizes future minimum lease payments to be received, excluding operating expense reimbursements, from tenants under non-cancelable operating leases as of December 31, 2018 (in thousands):

Year	Amount
2019	$	971,417
2020	928,102
2021	853,451
2022	751,972
2023	675,537
Thereafter	2,320,847
	$	6,501,326

Lease Costs

The following tables provide information regarding the Company’s leases to which it is the lessee, such as corporate offices and ground leases (dollars in thousands):

	Three Months Ended March 31,
Lease Expense Information:	2019		2018
Total lease expense(1)	$	4,803	$	5,024

_______________________________________

(1) Lease expense related to corporate assets is included in general and administrative expenses and lease expense related to ground leases is included within operating expenses in the Company’s consolidated statements of operations.

	Three Months Ended March 31,
Supplemental Cash Flow Information:	2019		2018
Cash paid for amounts included in the measurement of lease liability:
Operating cash flows for operating leases	$	3,963	$	4,253
ROU asset obtained in exchange for new lease liability:
Operating leases	$	880	$	—

Weighted Average Lease Term and Discount Rate:	March 31, 2019
Weighted average remaining lease term (years):
Operating leases	52
Weighted average discount rate:
Operating leases	4.36	%

The following table summarizes future minimum lease obligations under non-cancelable ground and other operating leases as of March 31, 2019 (in thousands):

Year	Amount
2019 (nine months)	$	5,937
2020	7,816
2021	7,888
2022	8,028
2023	8,198
Thereafter	471,083
Undiscounted minimum lease payments payable	508,950
Less: imputed interest	(356,113		)
Present value of lease liability	$	152,837

The following table summarizes future minimum lease obligations under non-cancelable ground and other operating leases as of December 31, 2018 (in thousands):

Year	Amount
2019	$	5,597
2020	5,687
2021	5,776
2022	5,862
2023	5,983
Thereafter	466,130
	$	495,035

Depreciation Expense

While the Company leases the majority of its property, plant, and equipment to various tenants under operating leases and DFLs, in certain situations, the Company owns and operates property, plant, and equipment for general corporate purposes. Corporate assets are recorded within other assets, net within the Company’s consolidated balance sheets and depreciation expense for those assets is recorded in general and administrative expenses in the Company’s consolidated statements of operations. Included within other assets, net as of both March 31, 2019 and December 31, 2018 is $3 million and $2 million, respectively, of accumulated depreciation related to corporate assets. Included within general and administrative expenses for the three months ended March 31, 2019 and 2018 is $0.4 million and $0.2 million, respectively, of depreciation expense related to corporate assets.

Leases

Leases

Lease Income

The following table summarizes the Company’s lease income:

	Three Months Ended March 31,
	2019		2018
Operating lease income	$	294,222	$	316,752
Interest income on direct financing leases	13,524		13,266

Direct Financing Leases

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

	March 31, 2019
Present value of minimum lease payments receivable	$	273,629
Present value of estimated residual value	114,364
Less deferred selling profits	(24,598		)
Net investment in direct financing leases	$	363,395
Properties subject to direct financing leases	15

	December 31, 2018
Minimum lease payments receivable	$	1,013,976
Estimated residual value	507,484
Less unearned income	(807,642		)
Net investment in direct financing leases	$	713,818
Properties subject to direct financing leases	29

Direct Financing Lease Internal Ratings

The following table summarizes the Company’s internal ratings for DFLs at March 31, 2019 (dollars in thousands):

	Carrying Amount		Percentage of DFL Portfolio	Internal Ratings
Segment				Performing DFLs		Watch List DFLs		Workout DFLs
Senior housing triple-net	$	278,791	77	$	278,791	$	—	$	—
Other non-reportable segments	84,604		23	84,604		—		—
	$	363,395	100	$	363,395	$	—	$	—

Beginning September 30, 2013, the Company placed a 14-property senior housing triple-net DFL (the “DFL Watchlist Portfolio”) on nonaccrual status and “Watch List” status. The Company determined that the collection of all rental payments was and continues to be no longer reasonably assured; therefore, rental revenue for the DFL Watchlist Portfolio is being recognized on a cash basis. During the three months ended March 31, 2019 and 2018, the Company recognized income from DFLs of $4 million and $3 million, respectively. During the three months ended March 31, 2019 and 2018, the Company received cash payments of $5 million from the DFL Watchlist Portfolio. The carrying value of the DFL Watchlist Portfolio was zero and $351 million at March 31, 2019 and December 31, 2018, respectively.

Direct Financing Lease Transition

During the first quarter of 2019, the Company transitioned the DFL Watchlist Portfolio 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 transitioned from the senior housing triple-net segment to the SHOP segment during the first quarter of 2019.

Direct Financing Lease Receivable Maturities

The following table summarizes future minimum lease payments contractually due under DFLs at March 31, 2019 (in thousands):

Year	Amount
2019 (nine months)	$	29,365
2020	32,558
2021	31,989
2022	25,346
2023	24,774
Thereafter	416,286
Undiscounted minimum lease payments receivable	560,318
Less: imputed interest	(286,689		)
Present value of minimum lease payments receivable	$	273,629

The following table summarizes future minimum lease payments contractually due under DFLs at December 31, 2018 (in thousands):

Year	Amount
2019	$	114,970
2020	63,308
2021	63,687
2022	58,135
2023	58,570
Thereafter	655,306
	$	1,013,976

Residual Value Risk

Quarterly, the Company reviews the estimated unguaranteed residual value of assets under DFLs to determine if there have been any material changes compared to the prior quarter. As needed, the Company and/or the related tenants will invest necessary funds to maintain the residual value of each asset.

Operating Leases

Future Minimum Rents

The following table summarizes future minimum lease payments to be received, excluding operating expense reimbursements, from tenants under non-cancelable operating leases as of March 31, 2019 (in thousands):

Year	Amount
2019 (nine months)	$	733,816
2020	952,756
2021	884,923
2022	782,066
2023	703,054
Thereafter	2,505,848
	$	6,562,463

The following table summarizes future minimum lease payments to be received, excluding operating expense reimbursements, from tenants under non-cancelable operating leases as of December 31, 2018 (in thousands):

Year	Amount
2019	$	971,417
2020	928,102
2021	853,451
2022	751,972
2023	675,537
Thereafter	2,320,847
	$	6,501,326

Lease Costs

The following tables provide information regarding the Company’s leases to which it is the lessee, such as corporate offices and ground leases (dollars in thousands):

	Three Months Ended March 31,
Lease Expense Information:	2019		2018
Total lease expense(1)	$	4,803	$	5,024

_______________________________________

(1) Lease expense related to corporate assets is included in general and administrative expenses and lease expense related to ground leases is included within operating expenses in the Company’s consolidated statements of operations.

	Three Months Ended March 31,
Supplemental Cash Flow Information:	2019		2018
Cash paid for amounts included in the measurement of lease liability:
Operating cash flows for operating leases	$	3,963	$	4,253
ROU asset obtained in exchange for new lease liability:
Operating leases	$	880	$	—

Weighted Average Lease Term and Discount Rate:	March 31, 2019
Weighted average remaining lease term (years):
Operating leases	52
Weighted average discount rate:
Operating leases	4.36	%

The following table summarizes future minimum lease obligations under non-cancelable ground and other operating leases as of March 31, 2019 (in thousands):

Year	Amount
2019 (nine months)	$	5,937
2020	7,816
2021	7,888
2022	8,028
2023	8,198
Thereafter	471,083
Undiscounted minimum lease payments payable	508,950
Less: imputed interest	(356,113		)
Present value of lease liability	$	152,837

The following table summarizes future minimum lease obligations under non-cancelable ground and other operating leases as of December 31, 2018 (in thousands):

Year	Amount
2019	$	5,597
2020	5,687
2021	5,776
2022	5,862
2023	5,983
Thereafter	466,130
	$	495,035

Depreciation Expense

While the Company leases the majority of its property, plant, and equipment to various tenants under operating leases and DFLs, in certain situations, the Company owns and operates property, plant, and equipment for general corporate purposes. Corporate assets are recorded within other assets, net within the Company’s consolidated balance sheets and depreciation expense for those assets is recorded in general and administrative expenses in the Company’s consolidated statements of operations. Included within other assets, net as of both March 31, 2019 and December 31, 2018 is $3 million and $2 million, respectively, of accumulated depreciation related to corporate assets. Included within general and administrative expenses for the three months ended March 31, 2019 and 2018 is $0.4 million and $0.2 million, respectively, of depreciation expense related to corporate assets.