Pennant Group, Inc.PNTG
Pennant Group, Inc. Leases Disclosure
LEASES
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 December 31, 2025, for our operating leases, the weighted average remaining lease term is 10.7 years and the weighted average discount rate is 7.9%. As of December 31, 2025, for our finance leases, the weighted average remaining lease term is 1.5 years and the weighted average discount rate is 6.34%.
The Company has operating leases through which its independent operating subsidiaries lease administrative offices of home health and hospice agencies, senior living communities, and corporate offices with initial lease terms ranging from to 25 years. Most of these operating leases are non-cancelable, 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. The Company elected the accounting policy practical expedients in ASC 842 to: (i) combine associated lease and non-lease components into a single lease component; and (ii) exclude recording short-term leases as right-of-use assets and
liabilities on the Consolidated Balance Sheets. Non-lease components, which are not significant overall, are combined with lease components. The Company also has finance leases which have initial terms between 2 and 5 years. As of December 31, 2025, the Company has a real estate lease with a purchase option that the Company is reasonably certain to exercise and leased vehicles that are considered finance leases under ASC 842.
As of December 31, 2025, the Company’s independent operating subsidiaries leased 32 senior living communities from subsidiaries of Ensign (“Ensign Leases”) under two master lease arrangements. The existing leases with subsidiaries of Ensign are for initial terms of between 14 to 20 years. The total amount of rent expense included in rent - cost of services paid to subsidiaries of Ensign was $15,116, $14,018, and $13,567, for the years ended December 31, 2025, 2024, and 2023, respectively. 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.
Fourteen of the Company’s affiliated senior living communities, excluding the communities that are operated under the Ensign Leases (as defined herein), are operated under three 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.
Finance lease balances as of December 31, 2025 and December 31, 2024 are as follows:
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Finance lease balances: | |||||||||||
| $ | 6,586 | $ | 965 | ||||||||
| $ | 818 | $ | 268 | ||||||||
| $ | 5,845 | $ | 666 | ||||||||
| (a) | Finance right-of-use assets are included in Restricted and other assets on our Consolidated Balance Sheets. | |||||||
| (b) | Finance lease liabilities—current are included in Other accrued liabilities on our Consolidated Balance Sheets. | |||||||
| (c) | Long-term finance lease liabilities—less current portion are included in Other long-term liabilities on our Consolidated Balance Sheets. | |||||||
The components of total lease cost, net are as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Operating lease costs: | |||||||||||||||||
| Community Rent—cost of services | $ | 38,949 | $ | 35,840 | $ | 33,992 | |||||||||||
| Office Rent—cost of services | 9,751 | 7,189 | 5,767 | ||||||||||||||
Rent—cost of services(a) | $ | 48,700 | $ | 43,029 | $ | 39,759 | |||||||||||
| General and administrative expense | $ | 775 | $ | 451 | $ | 385 | |||||||||||
Variable lease cost(b) | $ | 9,729 | $ | 8,688 | $ | 7,369 | |||||||||||
| Finance lease costs: | |||||||||||||||||
Amortization of lease assets(c) | $ | 618 | $ | 214 | $ | 25 | |||||||||||
Interest on lease liabilities(d) | $ | 371 | $ | 53 | $ | 7 | |||||||||||
| (a) | Includes short-term lease cost, which is immaterial | |||||||
| (b) | Represents variable lease cost for operating leases including property taxes, insurance, common area maintenance, and consumer price index increases. Costs of $5,263, $5,348, and $4,891 are recorded in cost of services and $4,466, $3,340, and $2,478 are included in rent-cost of services for the years ended December 31, 2025, 2024, and 2023. | |||||||
| (c) | Amortization of lease assets is included in Depreciation and amortization on our Consolidated Statements of Income. | |||||||
| (d) | Interest on lease liabilities is included in Interest expense, net on our Consolidated Statements of Income. | |||||||
The following table shows the lease maturity analysis for all leases as of December 31, 2025:
| Year | Operating Lease Amounts | Finance Lease Amounts | ||||||
| 2026 | $ | 45,787 | $ | 1,193 | ||||
| 2027 | 43,389 | 5,703 | ||||||
| 2028 | 40,546 | 241 | ||||||
| 2029 | 38,348 | 14 | ||||||
| 2030 | 36,722 | — | ||||||
| Thereafter | 212,735 | — | ||||||
| Total lease payments | 417,527 | 7,151 | ||||||
| Less: present value adjustments | (138,203) | (488) | ||||||
| Present value of total lease liabilities | 279,324 | 6,663 | ||||||
| Less: current lease liabilities | (25,013) | (818) | ||||||
| Long-term operating lease liabilities | $ | 254,311 | $ | 5,845 | ||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
| 2023 | Feb 28, 2024 | |
| 2022 | Feb 23, 2023 | |
| 2021 | Feb 28, 2022 | |
| 2020 | Feb 24, 2021 | |
| 2019 | Mar 4, 2020 | |
About Leases Disclosures
Lease disclosures under ASC 842 provide a comprehensive view of a company's leased asset portfolio, including the split between operating and finance leases, discount rates used to present-value future payments, and the maturity schedule of lease obligations. This section reveals a significant source of off-balance-sheet commitments that were largely hidden before the current standard.
Key signals: the weighted-average discount rate affects the size of recorded lease liabilities — a higher rate reduces the reported obligation, so compare the chosen rate against the company's incremental borrowing rate. The operating versus finance lease mix affects both EBITDA and operating income presentation. Watch the maturity table for concentration risk: large payment cliffs in specific years may create cash flow pressure. Variable lease payments excluded from the liability measurement represent real obligations that do not appear on the balance sheet. Compare total lease costs against prior-year operating lease expense to assess the true economic burden.