Leases

12 Months Ended

Dec. 31, 2024

Leases [Abstract]

Leases

Leases

The Company leases real estate and equipment under operating and finance leases. At lease inception, if the lease meets any of the following five criteria, the Company will classify it as a finance lease: (i) the lease transfers ownership of the underlying asset to the Company by the end of the lease term, (ii) the lease grants the Company an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (iii) the lease term is for the major part of the remaining economic life of the underlying asset, (iv) the present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all (90% or more) of the fair value of the underlying asset, or (v) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. Otherwise, the lease will be treated as an operating lease.

If a contract modification alters an embedded lease component and the modification is not accounted for as a separate contract, the classification of the lease is reassessed.

The Company’s operating leases are comprised primarily of real estate, including hospital buildings, medical office buildings and other administrative office buildings, and certain medical and office equipment, and finance leases are comprised primarily of medical equipment. The Company assesses the terms of each lease to determine its classification as operating or financing. The Company determines if an arrangement is or contains a lease at inception by assessing whether the arrangement contains an identified asset and whether it has the right to control the identified asset. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. Right-of-use assets are based on the measurement of the lease liability and also include any lease payments made prior to or on lease commencement and exclude lease incentives and initial direct costs incurred, as applicable.

As the implicit rate in the Company’s leases is generally unknown, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. In calculating the incremental borrowing rate, consideration is given to the Company’s credit risk, the term of the lease, the total lease payments and adjustments for the impacts of collateral, as necessary. Many of the Company’s leases include rental escalation clauses and renewal options that are factored into the determination of lease payments, when appropriate.

Certain of the Company’s lease agreements contain options to extend or terminate the lease. The Company evaluates these options on a lease-by-lease basis, and if the Company determines it is reasonably certain to exercise an option to extend or reasonably certain not to exercise an option to terminate, the lease term includes the period covered by the option. Lease costs for the Company’s operating leases are recognized on a straight-line basis within operating expenses over the lease term. Finance lease assets are amortized on a straight-line basis over the shorter of the estimated useful lives of the assets or the lease term. The interest component of finance leases is included in interest expense and recognized using the effective interest method over the lease term.

The Company has elected to not separate lease and non-lease components for any leases within its existing classes of assets and, as a result, accounts for any lease and non-lease components as a single lease component. The Company has also elected to not apply the recognition requirement to any leases within its existing classes of assets with a term of 12 months or less.

During the years ended December 31, 2024 and 2023, the Company recognized new right-of-use assets associated with operating leases of $25.1 million and $45.2 million, respectively.

The following table presents lease-related assets and liabilities (dollars in thousands):

		December 31,
	Balance Sheet Classification	2024			2023
Assets:
Operating leases	Operating lease right of use assets	$	248,040		$	260,003
Operating leases, related party	Operating lease right of use assets, related party	929,106			941,150
Finance leases	Property and equipment, net	51,171			51,982
Total lease assets		$	1,228,317		$	1,253,135
Liabilities:
Current:
Operating leases	Other accrued expenses and liabilities	$	33,604		$	31,332
Operating leases, related party	Other accrued expenses and liabilities	12,777			11,096
Finance leases	Current installments of long-term debt	5,653			6,236
Noncurrent:
Operating leases	Long-term operating lease liability	221,443			235,241
Operating leases, related party	Long-term operating lease liability, related party	919,313			932,090
Finance leases	Long-term debt, less current installments	15,254			15,470
Total lease liabilities		$	1,208,044		$	1,231,465
Operating leases:
Weighted-average remaining term		17.0 years			17.8 years
Weighted-average discount rate (a)		12.6		%	12.5		%

(a)    As most of the Company’s leases do not provide a readily determinable implicit interest rate, the Company uses an incremental borrowing rate commensurate with the respective terms of the leases to discount the lease payments. The Company evaluates the discount rate throughout the year to determine whether changes in facts and circumstances should result in a change to the discount rate used for leases.

The following table provides information related to expenses for operating leases (in thousands):

	Years Ended December 31,
	2024		2023		2022
Operating lease cost (b)	$	200,104	$	197,881	$	185,156
Short-term lease expense (b)	24,127		21,447		20,840
Variable lease expense (b)	28,575		23,996		17,708
Total lease expense	$	252,806	$	243,324	$	223,704
(b) These expenses are included in “Rents and leases” and “Rents and leases, related party” on the Company’s consolidated income statements.

The following table presents supplemental cash flow information (in thousands):

	Years Ended December 31,
	2024		2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	66,233	$	66,459	$	53,946
Operating cash flows for operating leases, related party	131,201		130,986		130,657
Total operating cash flows for operating leases	$	197,434	$	197,445	$	184,603

Maturities of Lease Liabilities

Undiscounted cash flows for operating leases recorded on the consolidated balance sheet at December 31, 2024 were as follows (in thousands):

2025	$	194,034
2026	188,388
2027	181,605
2028	177,739
2029	163,699
Thereafter	2,056,030
Total rental payments	2,961,495
Less: Amount of lease payments representing interest	1,774,358
Present value of future minimum lease payments	1,187,137
Less: Current portion of lease liabilities	46,381
Noncurrent lease liabilities	$	1,140,756

Sale of Medical Office Buildings

On February 9, 2022, the Company completed the sale of 18 medical office buildings to Ventas, a related party, in exchange for $204.0 million. Concurrent with the sale, the Company entered into agreements to lease the real estate back from Ventas over a 12-year initial term with eight options to renew with additional five-year terms.

The initial terms of the agreements did not qualify for accounting treatment as sale-leaseback arrangements. Thus, upon completion of the transaction, the assets continued to depreciate over their respective useful lives. Additionally, the net proceeds received from the transaction of $202.1 million were accounted for as a related party deferred financing obligation. The Company used an imputed interest rate to determine the portion of lease payments to allocate between interest expense and principal repayment of the deferred financing obligation. For the year ended December 31, 2022, lease payments totaled $9.5 million, all of which was included in interest expense, related party on the Company’s consolidated income statement.

On December 28, 2022, the Company amended the terms of the original lease agreements with Ventas. The amended terms qualified for accounting treatment as sale-leaseback arrangements. Therefore, the Company removed the associated buildings, land and related improvements from fixed assets, removed the deferred financing obligation, recognized the right-of-use lease assets and associated lease liabilities, and recognized a gain of $157.8 million in other non-operating gains, related party on the Company’s consolidated income statement for the year ended December 31, 2022. Refer to Note 4 for additional information on this transaction.

Leases

Leases

The Company leases real estate and equipment under operating and finance leases. At lease inception, if the lease meets any of the following five criteria, the Company will classify it as a finance lease: (i) the lease transfers ownership of the underlying asset to the Company by the end of the lease term, (ii) the lease grants the Company an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (iii) the lease term is for the major part of the remaining economic life of the underlying asset, (iv) the present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all (90% or more) of the fair value of the underlying asset, or (v) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. Otherwise, the lease will be treated as an operating lease.

If a contract modification alters an embedded lease component and the modification is not accounted for as a separate contract, the classification of the lease is reassessed.

The Company’s operating leases are comprised primarily of real estate, including hospital buildings, medical office buildings and other administrative office buildings, and certain medical and office equipment, and finance leases are comprised primarily of medical equipment. The Company assesses the terms of each lease to determine its classification as operating or financing. The Company determines if an arrangement is or contains a lease at inception by assessing whether the arrangement contains an identified asset and whether it has the right to control the identified asset. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. Right-of-use assets are based on the measurement of the lease liability and also include any lease payments made prior to or on lease commencement and exclude lease incentives and initial direct costs incurred, as applicable.

As the implicit rate in the Company’s leases is generally unknown, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. In calculating the incremental borrowing rate, consideration is given to the Company’s credit risk, the term of the lease, the total lease payments and adjustments for the impacts of collateral, as necessary. Many of the Company’s leases include rental escalation clauses and renewal options that are factored into the determination of lease payments, when appropriate.

Certain of the Company’s lease agreements contain options to extend or terminate the lease. The Company evaluates these options on a lease-by-lease basis, and if the Company determines it is reasonably certain to exercise an option to extend or reasonably certain not to exercise an option to terminate, the lease term includes the period covered by the option. Lease costs for the Company’s operating leases are recognized on a straight-line basis within operating expenses over the lease term. Finance lease assets are amortized on a straight-line basis over the shorter of the estimated useful lives of the assets or the lease term. The interest component of finance leases is included in interest expense and recognized using the effective interest method over the lease term.

The Company has elected to not separate lease and non-lease components for any leases within its existing classes of assets and, as a result, accounts for any lease and non-lease components as a single lease component. The Company has also elected to not apply the recognition requirement to any leases within its existing classes of assets with a term of 12 months or less.

During the years ended December 31, 2024 and 2023, the Company recognized new right-of-use assets associated with operating leases of $25.1 million and $45.2 million, respectively.

The following table presents lease-related assets and liabilities (dollars in thousands):

		December 31,
	Balance Sheet Classification	2024			2023
Assets:
Operating leases	Operating lease right of use assets	$	248,040		$	260,003
Operating leases, related party	Operating lease right of use assets, related party	929,106			941,150
Finance leases	Property and equipment, net	51,171			51,982
Total lease assets		$	1,228,317		$	1,253,135
Liabilities:
Current:
Operating leases	Other accrued expenses and liabilities	$	33,604		$	31,332
Operating leases, related party	Other accrued expenses and liabilities	12,777			11,096
Finance leases	Current installments of long-term debt	5,653			6,236
Noncurrent:
Operating leases	Long-term operating lease liability	221,443			235,241
Operating leases, related party	Long-term operating lease liability, related party	919,313			932,090
Finance leases	Long-term debt, less current installments	15,254			15,470
Total lease liabilities		$	1,208,044		$	1,231,465
Operating leases:
Weighted-average remaining term		17.0 years			17.8 years
Weighted-average discount rate (a)		12.6		%	12.5		%

(a)    As most of the Company’s leases do not provide a readily determinable implicit interest rate, the Company uses an incremental borrowing rate commensurate with the respective terms of the leases to discount the lease payments. The Company evaluates the discount rate throughout the year to determine whether changes in facts and circumstances should result in a change to the discount rate used for leases.

The following table provides information related to expenses for operating leases (in thousands):

	Years Ended December 31,
	2024		2023		2022
Operating lease cost (b)	$	200,104	$	197,881	$	185,156
Short-term lease expense (b)	24,127		21,447		20,840
Variable lease expense (b)	28,575		23,996		17,708
Total lease expense	$	252,806	$	243,324	$	223,704
(b) These expenses are included in “Rents and leases” and “Rents and leases, related party” on the Company’s consolidated income statements.

The following table presents supplemental cash flow information (in thousands):

	Years Ended December 31,
	2024		2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	66,233	$	66,459	$	53,946
Operating cash flows for operating leases, related party	131,201		130,986		130,657
Total operating cash flows for operating leases	$	197,434	$	197,445	$	184,603

Maturities of Lease Liabilities

Undiscounted cash flows for operating leases recorded on the consolidated balance sheet at December 31, 2024 were as follows (in thousands):

2025	$	194,034
2026	188,388
2027	181,605
2028	177,739
2029	163,699
Thereafter	2,056,030
Total rental payments	2,961,495
Less: Amount of lease payments representing interest	1,774,358
Present value of future minimum lease payments	1,187,137
Less: Current portion of lease liabilities	46,381
Noncurrent lease liabilities	$	1,140,756

Sale of Medical Office Buildings

On February 9, 2022, the Company completed the sale of 18 medical office buildings to Ventas, a related party, in exchange for $204.0 million. Concurrent with the sale, the Company entered into agreements to lease the real estate back from Ventas over a 12-year initial term with eight options to renew with additional five-year terms.

The initial terms of the agreements did not qualify for accounting treatment as sale-leaseback arrangements. Thus, upon completion of the transaction, the assets continued to depreciate over their respective useful lives. Additionally, the net proceeds received from the transaction of $202.1 million were accounted for as a related party deferred financing obligation. The Company used an imputed interest rate to determine the portion of lease payments to allocate between interest expense and principal repayment of the deferred financing obligation. For the year ended December 31, 2022, lease payments totaled $9.5 million, all of which was included in interest expense, related party on the Company’s consolidated income statement.

On December 28, 2022, the Company amended the terms of the original lease agreements with Ventas. The amended terms qualified for accounting treatment as sale-leaseback arrangements. Therefore, the Company removed the associated buildings, land and related improvements from fixed assets, removed the deferred financing obligation, recognized the right-of-use lease assets and associated lease liabilities, and recognized a gain of $157.8 million in other non-operating gains, related party on the Company’s consolidated income statement for the year ended December 31, 2022. Refer to Note 4 for additional information on this transaction.