Lease Commitments

12 Months Ended

Dec. 31, 2023

7) LEASE COMMITMENTS

We follow FASB ASU 2016-02 ("Topic 842") "Leases." Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheets for most leases and provide enhanced disclosures. Leases will be classified as either finance or operating.

We have elected the policy exemption that allows lessees to choose to not separate lease and non-lease components by class of underlying asset and are applying this expedient to all relevant asset classes.

We determine if an arrangement is or contains a lease at inception of the contract. Our right-of-use assets represent our right to use the underlying assets for the lease term and our lease liabilities represent our obligation to make lease payments arising from the leases. Right-of-use assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We use the implicit rate noted within the contract if known or determinable. If the implicit rate is not readily available, we use our estimated incremental borrowing rate, which is derived using a collateralized borrowing rate for the same currency and term as the associated lease. A right-of-use asset and lease liability is not recognized for leases with an initial term of 12 months or less and we recognize lease expense for these leases on a straight-line basis over the lease term within lease and rental expense.

Our operating leases are primarily for real estate, including certain acute care facilities, off-campus outpatient facilities, medical office buildings, and corporate and other administrative offices. Our real estate lease agreements typically have initial terms of five to ten years. These real estate leases may include one or more options to renew, with renewals that can extend the lease term from five to ten years. The exercise of lease renewal options is at our sole discretion. When determining the lease term, we included options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Five of our hospital facilities are held under operating leases with Universal Health Realty Income Trust with two hospital terms expiring in 2026, two expiring in 2033, and one expiring in 2040 (see Note 9 for additional disclosure). We also lease the real property of certain facilities (see Item 2. Properties for additional disclosure).

The components of lease expense for the years ended December 31, 2023, 2022 and 2021 are as follows (in thousands):


	Twelve months ended December 31,
	2023		2022		2021

Operating lease cost	$	99,812	$	90,326	$	77,420
Variable and short term lease cost (a)		41,214		41,300		41,443
Total lease and rental expense	$	141,026	$	131,626	$	118,863

Finance lease cost:
Amortization of property under capital lease	$	4,998	$	5,110	$	3,626
Interest on debt of property under capital lease		3,771		3,903		4,124
Total finance lease cost	$	8,769	$	9,013	$	7,750

(a)

Includes equipment, month-to-month and leases with a maturity of less than 12 months.

Supplemental cash flow information related to leases for the years ended December 31, 2023, 2022 and 2021 are as follows (in thousands):


	Twelve months ended December 31,
	2023		2022		2021

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	129,299	$	124,704	$	118,433
Operating cash flows from finance leases	$	3,832	$	3,963	$	4,612
Financing cash flows from finance leases	$	3,817	$	3,454	$	2,849

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	62,223	$	163,679	$	95,805
Finance leases	$	452	$	1,066	$	28,600

Supplemental balance sheets information related to leases as of December 31, 2023 and 2022 are as follows (in thousands):


	December 31,			December 31,
	2023			2022

Operating Leases
Right of use assets-operating leases	$	433,962		$	454,650

Operating lease liabilities	$	71,600		$	67,776
Operating lease liabilities noncurrent		382,559			395,522
Total operating lease liabilities	$	454,159		$	463,298

Finance Leases
Property and equipment	$	101,318		$	102,494
Accumulated depreciation		(38,423	)		(34,455	)
Property and equipment, net	$	62,895		$	68,039

Current maturities of long-term debt	$	3,050		$	3,046
Long-term debt		69,643			72,549
Total finance lease liabilities	$	72,693		$	75,595

Weighted Average remaining lease term, years
Operating leases		16.5			16.1
Finance leases		20.0			20.7

Weighted Average discount rate
Operating leases		5.2	%		5.0	%
Finance leases		5.5	%		5.4	%

Future maturities of lease liabilities as of December 31, 2023 are as follows (in thousands):


	Operating Leases			Finance Leases
Year ending December 31,
2024	$	84,621		$	6,716
2025		77,848			5,943
2026		68,363			5,948
2027		50,291			6,104
2028		38,042			6,265
Later years		595,748			95,309
Total lease payments		914,913			126,285
less imputed interest		(460,754	)		(53,592	)
Total	$	454,159		$	72,693

We assumed approximately $1 million in finance lease obligations during each of 2023 and 2022 and $29 million during 2021. In the ordinary course of business, our facilities routinely lease equipment pursuant to new lease arrangements that will likely result in future lease and rental expense in excess of amounts indicated above.