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Leases

6 Months Ended

Jun. 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 June 30, 2019			Six Months Ended June 30, 2019
Operating lease cost: ⁽¹⁾
Real estate lease expense	Property operating expenses	$	7,267		$	14,679
Non-real estate lease expense	General and administrative expenses	408			770
Finance lease cost:
Amortization of leased assets	Property operating expenses	2,153			4,245
Interest on lease liabilities	Interest expense	1,166			2,169
Sublease income	Rental income	(1,043		)	(2,087		)
Total		$	9,951		$	19,776

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

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



	Operating Leases			Finance Leases
2019	$	9,809		$	4,488
2020	19,625			8,821
2021	19,558			8,485
2022	18,627			7,852
2023	18,707			68,967
Thereafter	1,595,101			86,081
Total lease payments	1,681,427			184,694
Less: Imputed interest	(1,321,129		)	(75,963		)
Total present value of lease liabilities	$	360,298		$	108,731

Supplemental balance sheet information related to leases was as follows for the date indicated (in thousands, except lease terms and discount rate):



	Classification	June 30, 2019
Right of use assets:
Operating leases - real estate	Right of use assets, net	$	386,061
Finance leases	Right of use assets, net	164,281
Real estate right of use assets, net		550,342
Operating leases - corporate	Receivables and other assets	5,055
Total right of use assets, net		$	555,397

Lease liabilities:
Operating leases		$	360,298
Financing leases		108,731
Total		$	469,029

Weighted average remaining lease term (years):
Operating leases		50.0
Finance leases		15.8

Weighted average discount rate:
Operating leases		5.21		%
Finance leases		5.17		%

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



	Classification	Six Months Ended June 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	$	4,627
Operating cash flows from finance leases	Decrease (increase) in receivables and other assets	3,916
Financing cash flows from finance leases	Other financing activities	(1,638		)

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 $766,670,000 of rental and other revenues related to operating lease payments, of which $94,017,000 was for variable lease payments for the six months ended June 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 undiscounted cash flows for future minimum lease payments receivable for leases in effect at June 30, 2019 (excluding properties in our Seniors Housing Operating partnerships and excluding any operating expense reimbursements) (in thousands):



2019	$	925,026
2020	1,380,111
2021	1,346,698
2022	1,237,904
2023	1,255,408
Thereafter	9,745,880
Totals	$	15,891,027

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 June 30, 2019			Six Months Ended June 30, 2019
Operating lease cost: ⁽¹⁾
Real estate lease expense	Property operating expenses	$	7,267		$	14,679
Non-real estate lease expense	General and administrative expenses	408			770
Finance lease cost:
Amortization of leased assets	Property operating expenses	2,153			4,245
Interest on lease liabilities	Interest expense	1,166			2,169
Sublease income	Rental income	(1,043		)	(2,087		)
Total		$	9,951		$	19,776

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

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



	Operating Leases			Finance Leases
2019	$	9,809		$	4,488
2020	19,625			8,821
2021	19,558			8,485
2022	18,627			7,852
2023	18,707			68,967
Thereafter	1,595,101			86,081
Total lease payments	1,681,427			184,694
Less: Imputed interest	(1,321,129		)	(75,963		)
Total present value of lease liabilities	$	360,298		$	108,731

Supplemental balance sheet information related to leases was as follows for the date indicated (in thousands, except lease terms and discount rate):



	Classification	June 30, 2019
Right of use assets:
Operating leases - real estate	Right of use assets, net	$	386,061
Finance leases	Right of use assets, net	164,281
Real estate right of use assets, net		550,342
Operating leases - corporate	Receivables and other assets	5,055
Total right of use assets, net		$	555,397

Lease liabilities:
Operating leases		$	360,298
Financing leases		108,731
Total		$	469,029

Weighted average remaining lease term (years):
Operating leases		50.0
Finance leases		15.8

Weighted average discount rate:
Operating leases		5.21		%
Finance leases		5.17		%

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



	Classification	Six Months Ended June 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	$	4,627
Operating cash flows from finance leases	Decrease (increase) in receivables and other assets	3,916
Financing cash flows from finance leases	Other financing activities	(1,638		)



2019	$	925,026
2020	1,380,111
2021	1,346,698
2022	1,237,904
2023	1,255,408
Thereafter	9,745,880
Totals	$	15,891,027

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 June 30, 2019			Six Months Ended June 30, 2019
Operating lease cost: ⁽¹⁾
Real estate lease expense	Property operating expenses	$	7,267		$	14,679
Non-real estate lease expense	General and administrative expenses	408			770
Finance lease cost:
Amortization of leased assets	Property operating expenses	2,153			4,245
Interest on lease liabilities	Interest expense	1,166			2,169
Sublease income	Rental income	(1,043		)	(2,087		)
Total		$	9,951		$	19,776

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

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



	Operating Leases			Finance Leases
2019	$	9,809		$	4,488
2020	19,625			8,821
2021	19,558			8,485
2022	18,627			7,852
2023	18,707			68,967
Thereafter	1,595,101			86,081
Total lease payments	1,681,427			184,694
Less: Imputed interest	(1,321,129		)	(75,963		)
Total present value of lease liabilities	$	360,298		$	108,731

Supplemental balance sheet information related to leases was as follows for the date indicated (in thousands, except lease terms and discount rate):



	Classification	June 30, 2019
Right of use assets:
Operating leases - real estate	Right of use assets, net	$	386,061
Finance leases	Right of use assets, net	164,281
Real estate right of use assets, net		550,342
Operating leases - corporate	Receivables and other assets	5,055
Total right of use assets, net		$	555,397

Lease liabilities:
Operating leases		$	360,298
Financing leases		108,731
Total		$	469,029

Weighted average remaining lease term (years):
Operating leases		50.0
Finance leases		15.8

Weighted average discount rate:
Operating leases		5.21		%
Finance leases		5.17		%

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



	Classification	Six Months Ended June 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	$	4,627
Operating cash flows from finance leases	Decrease (increase) in receivables and other assets	3,916
Financing cash flows from finance leases	Other financing activities	(1,638		)



2019	$	925,026
2020	1,380,111
2021	1,346,698
2022	1,237,904
2023	1,255,408
Thereafter	9,745,880
Totals	$	15,891,027