v3.25.2
LEASES
 6 Months Ended
Jun. 30, 2025
Leases [Abstract]  
LEASES LEASES
The Company leases from CareTrust real property associated with 96 independent skilled nursing and senior living facilities used in the Company’s operations under eight “triple-net” master lease agreements (collectively, the Master Leases), which range in terms from 13 to 20 years. At the Company’s option, the Master Leases may be extended for two or three five-year renewal terms beyond the initial term, on the same terms and conditions. The extension of the term of any of the Master Leases is subject to the following conditions: (1) no event of default under any of the Master Leases having occurred and continuing; and (2) the tenants providing timely notice of their intent to renew. The term of the Master Leases is subject to termination prior to the expiration of the current term upon default by the tenants in their obligations, if not cured within any applicable cure periods set forth in the Master Leases. If the Company elects to renew the term of a Master Lease, the renewal will be effective to all, but not less than all, of the leased property then subject to the Master Lease.
The Company does not have the ability to terminate the obligations under a Master Lease prior to its expiration without CareTrust’s consent. If a Master Lease is terminated prior to its expiration other than with CareTrust’s consent, the Company may be liable for damages and incur charges such as continued payment of rent through the end of the lease term as well as maintenance and repair costs for the leased property.
The rent structure under the Master Leases includes a fixed component, subject to annual escalation equal to the lesser of (1) the percentage change in the Consumer Price Index (but not less than zero) or (2) 2.5%. In addition to rent, the Company is 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 facility 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. Total rent expense under the Master Leases was approximately $16,904 and $34,030 for the three and six months ended June 30, 2025, respectively, and $17,272 and $34,072 for the three and six months ended June 30, 2024, respectively.
Among other things, under the Master Leases, the Company must maintain compliance with specified financial covenants measured on a quarterly basis, including a portfolio coverage ratio and a minimum rent coverage ratio. The Master Leases also include certain reporting, legal and authorization requirements. The Company is in compliance with requirements of the Master Leases as of June 30, 2025.
The Company leases facilities where its independent subsidiaries operate and certain administrative offices under non-cancelable operating leases, most of which have initial lease terms ranging from 15 to 20 years. In addition, the Company leases certain of its equipment under non-cancelable operating leases with initial terms ranging from three to five years. Most of these leases contain renewal options, certain of which involve rent increases.
The Company's 100 independent subsidiaries, excluding the subsidiaries that are operated under the Master Leases with CareTrust, are operated under 17 separate master lease arrangements. In the first quarter of 2025, the Company entered into one new master lease arrangement to add six stand-alone skilled nursing facilities operated by the Company's independent subsidiaries with an initial term of 15 years. The new master lease arrangement increased the lease liabilities and right-of-use assets by $57,961 to reflect the new lease obligations. In the second quarter of 2025, the Company entered into two new master lease arrangements to add four stand-alone skilled nursing facilities operated by the Company's independent subsidiaries with an initial term of 15 years. The new master lease arrangements increased the lease liabilities and right-of-use assets by $52,753 to reflect the new lease obligations. Under the master leases, a default at a single facility could subject one or more of the other facilities 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, master lease agreements and debt financing instruments. In addition, other potential defaults related to an individual facility may cause a default of an entire master lease portfolio and could trigger cross-default provisions in the Company’s outstanding debt arrangements and other leases. With an indivisible lease, it is difficult to restructure the composition of the portfolio or economic terms of the lease without the consent of the landlord.
The components of operating lease expense are as follows:
Three Months Ended June 30,Six Months Ended June 30,
2025202420252024
Rent - cost of services(1)
$57,195 $53,272 $114,271 $105,148 
Cost of services(2)
6,611 5,649 13,040 11,419 
General and administrative expense214 181 413 334 
Depreciation and amortization(3)
272 303 414 606 
$64,292 $59,405 $128,138 $117,507 
(1)Rent - cost of services includes deferred rent expense adjustments of $199 and $407 for the three and six months ended June 30, 2025, respectively, and $190 and $385 for the three and six months ended June 30, 2024, respectively. Additionally, rent - cost of services includes other variable lease costs such as CPI increases and short-term leases of $4,634 and $8,638 for the three and six months ended June 30, 2025, respectively, and $3,300 and $6,357 for the three and six months ended June 30, 2024, respectively.
(2)Cost of services includes variable lease costs consisting of property taxes and insurance.
(3)Depreciation and amortization is related to the amortization of favorable and direct lease costs.
Future minimum lease payments for all third-party leases as of June 30, 2025 are as follows:
YearAmount
2025 (remainder)$108,371 
2026216,519 
2027215,728 
2028214,656 
2029210,795 
2030206,617 
Thereafter1,686,729 
TOTAL LEASE PAYMENTS$2,859,415 
Less: present value adjustment (963,372)
PRESENT VALUE OF TOTAL LEASE LIABILITIES$1,896,043 
Less: current lease liabilities(103,825)
LONG-TERM OPERATING LEASE LIABILITIES$1,792,218 
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 the lease commencement date. As of June 30, 2025, the weighted average remaining lease term is 14.2 years and the weighted average discount rate used to determine the operating lease liabilities is 6.3%.
Lessor Activities

The Company leases its owned real estate properties to third-party operators, of which 32 senior living operations are operated by The Pennant Group, Inc. (Pennant). All of these properties are triple-net leases, whereby the respective tenants are responsible for all costs at the properties including: (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 facility 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. The initial terms range from 14 to 16 years.

During the three and six months ended June 30, 2025, the Company entered into two lease agreements with a third-party operator for one skilled nursing and one senior living operation, both with initial lease terms of 15 years.
Total rental income from all third-party sources for the three and six months ended June 30, 2025 and 2024 is as follows:

Three Months Ended June 30,Six Months Ended June 30,
2025202420252024
Pennant(1)
$4,082 $3,824 $8,204 $7,644 
Other third-party(2)
2,273 1,887 4,152 3,754 
TOTAL$6,355 $5,711 $12,356 $11,398 
(1) Pennant rental income includes variable rent such as property taxes of $270 and $580 during the three and six months ended June 30, 2025 and $314 and $632 for the three and six months ended June 30, 2024.
(2) Other third-party includes rental revenue associated with the Company's subleases to third parties of $1,116 and $2,223 for the three and six months ended June 30, 2025, respectively, and $1,089 and $2,169 for the three and six months ended June 30, 2024, respectively.
Future annual rental income for all third-party leases as of June 30, 2025 were as follows:
Year
Amount(1)
2025 (remainder)$13,218 
202625,822 
202725,278 
202824,933 
202924,821 
203023,829 
Thereafter112,200 
TOTAL$250,101 
(1) Annual rental income includes base rents and variable rental income pursuant to existing leases as of June 30, 2025.
Subsequent to June 30, 2025, the Company entered into one lease agreement with a third-party operator for one stand-alone skilled nursing operation
LEASES LEASES
The Company leases from CareTrust real property associated with 96 independent skilled nursing and senior living facilities used in the Company’s operations under eight “triple-net” master lease agreements (collectively, the Master Leases), which range in terms from 13 to 20 years. At the Company’s option, the Master Leases may be extended for two or three five-year renewal terms beyond the initial term, on the same terms and conditions. The extension of the term of any of the Master Leases is subject to the following conditions: (1) no event of default under any of the Master Leases having occurred and continuing; and (2) the tenants providing timely notice of their intent to renew. The term of the Master Leases is subject to termination prior to the expiration of the current term upon default by the tenants in their obligations, if not cured within any applicable cure periods set forth in the Master Leases. If the Company elects to renew the term of a Master Lease, the renewal will be effective to all, but not less than all, of the leased property then subject to the Master Lease.
The Company does not have the ability to terminate the obligations under a Master Lease prior to its expiration without CareTrust’s consent. If a Master Lease is terminated prior to its expiration other than with CareTrust’s consent, the Company may be liable for damages and incur charges such as continued payment of rent through the end of the lease term as well as maintenance and repair costs for the leased property.
The rent structure under the Master Leases includes a fixed component, subject to annual escalation equal to the lesser of (1) the percentage change in the Consumer Price Index (but not less than zero) or (2) 2.5%. In addition to rent, the Company is 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 facility 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. Total rent expense under the Master Leases was approximately $16,904 and $34,030 for the three and six months ended June 30, 2025, respectively, and $17,272 and $34,072 for the three and six months ended June 30, 2024, respectively.
Among other things, under the Master Leases, the Company must maintain compliance with specified financial covenants measured on a quarterly basis, including a portfolio coverage ratio and a minimum rent coverage ratio. The Master Leases also include certain reporting, legal and authorization requirements. The Company is in compliance with requirements of the Master Leases as of June 30, 2025.
The Company leases facilities where its independent subsidiaries operate and certain administrative offices under non-cancelable operating leases, most of which have initial lease terms ranging from 15 to 20 years. In addition, the Company leases certain of its equipment under non-cancelable operating leases with initial terms ranging from three to five years. Most of these leases contain renewal options, certain of which involve rent increases.
The Company's 100 independent subsidiaries, excluding the subsidiaries that are operated under the Master Leases with CareTrust, are operated under 17 separate master lease arrangements. In the first quarter of 2025, the Company entered into one new master lease arrangement to add six stand-alone skilled nursing facilities operated by the Company's independent subsidiaries with an initial term of 15 years. The new master lease arrangement increased the lease liabilities and right-of-use assets by $57,961 to reflect the new lease obligations. In the second quarter of 2025, the Company entered into two new master lease arrangements to add four stand-alone skilled nursing facilities operated by the Company's independent subsidiaries with an initial term of 15 years. The new master lease arrangements increased the lease liabilities and right-of-use assets by $52,753 to reflect the new lease obligations. Under the master leases, a default at a single facility could subject one or more of the other facilities 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, master lease agreements and debt financing instruments. In addition, other potential defaults related to an individual facility may cause a default of an entire master lease portfolio and could trigger cross-default provisions in the Company’s outstanding debt arrangements and other leases. With an indivisible lease, it is difficult to restructure the composition of the portfolio or economic terms of the lease without the consent of the landlord.
The components of operating lease expense are as follows:
Three Months Ended June 30,Six Months Ended June 30,
2025202420252024
Rent - cost of services(1)
$57,195 $53,272 $114,271 $105,148 
Cost of services(2)
6,611 5,649 13,040 11,419 
General and administrative expense214 181 413 334 
Depreciation and amortization(3)
272 303 414 606 
$64,292 $59,405 $128,138 $117,507 
(1)Rent - cost of services includes deferred rent expense adjustments of $199 and $407 for the three and six months ended June 30, 2025, respectively, and $190 and $385 for the three and six months ended June 30, 2024, respectively. Additionally, rent - cost of services includes other variable lease costs such as CPI increases and short-term leases of $4,634 and $8,638 for the three and six months ended June 30, 2025, respectively, and $3,300 and $6,357 for the three and six months ended June 30, 2024, respectively.
(2)Cost of services includes variable lease costs consisting of property taxes and insurance.
(3)Depreciation and amortization is related to the amortization of favorable and direct lease costs.
Future minimum lease payments for all third-party leases as of June 30, 2025 are as follows:
YearAmount
2025 (remainder)$108,371 
2026216,519 
2027215,728 
2028214,656 
2029210,795 
2030206,617 
Thereafter1,686,729 
TOTAL LEASE PAYMENTS$2,859,415 
Less: present value adjustment (963,372)
PRESENT VALUE OF TOTAL LEASE LIABILITIES$1,896,043 
Less: current lease liabilities(103,825)
LONG-TERM OPERATING LEASE LIABILITIES$1,792,218 
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 the lease commencement date. As of June 30, 2025, the weighted average remaining lease term is 14.2 years and the weighted average discount rate used to determine the operating lease liabilities is 6.3%.
Lessor Activities

The Company leases its owned real estate properties to third-party operators, of which 32 senior living operations are operated by The Pennant Group, Inc. (Pennant). All of these properties are triple-net leases, whereby the respective tenants are responsible for all costs at the properties including: (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 facility 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. The initial terms range from 14 to 16 years.

During the three and six months ended June 30, 2025, the Company entered into two lease agreements with a third-party operator for one skilled nursing and one senior living operation, both with initial lease terms of 15 years.
Total rental income from all third-party sources for the three and six months ended June 30, 2025 and 2024 is as follows:

Three Months Ended June 30,Six Months Ended June 30,
2025202420252024
Pennant(1)
$4,082 $3,824 $8,204 $7,644 
Other third-party(2)
2,273 1,887 4,152 3,754 
TOTAL$6,355 $5,711 $12,356 $11,398 
(1) Pennant rental income includes variable rent such as property taxes of $270 and $580 during the three and six months ended June 30, 2025 and $314 and $632 for the three and six months ended June 30, 2024.
(2) Other third-party includes rental revenue associated with the Company's subleases to third parties of $1,116 and $2,223 for the three and six months ended June 30, 2025, respectively, and $1,089 and $2,169 for the three and six months ended June 30, 2024, respectively.
Future annual rental income for all third-party leases as of June 30, 2025 were as follows:
Year
Amount(1)
2025 (remainder)$13,218 
202625,822 
202725,278 
202824,933 
202924,821 
203023,829 
Thereafter112,200 
TOTAL$250,101 
(1) Annual rental income includes base rents and variable rental income pursuant to existing leases as of June 30, 2025.
Subsequent to June 30, 2025, the Company entered into one lease agreement with a third-party operator for one stand-alone skilled nursing operation