Lease Commitments

12 Months Ended

Dec. 31, 2024

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, 2024, 2023 and 2022 are as follows (in thousands):


	Twelve months ended December 31,
	2024		2023		2022

Operating lease cost	$	101,915	$	99,812	$	90,326
Variable and short term lease cost (a)		44,518		41,214		41,300
Total lease and rental expense	$	146,433	$	141,026	$	131,626

Finance lease cost:
Amortization of property under capital lease	$	5,923	$	4,998	$	5,110
Interest on debt of property under capital lease		2,006		3,771		3,903
Total finance lease cost	$	7,929	$	8,769	$	9,013

(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, 2024, 2023 and 2022 are as follows (in thousands):


	Twelve months ended December 31,
	2024		2023		2022

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	134,543	$	129,299	$	124,704
Operating cash flows from finance leases	$	3,652	$	3,832	$	3,963
Financing cash flows from finance leases	$	3,973	$	3,817	$	3,454

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	68,029	$	62,223	$	163,679
Finance leases	$	23,700	$	452	$	1,066

Supplemental balance sheets information related to leases as of December 31, 2024 and 2023 are as follows (in thousands):


	December 31,			December 31,
	2024			2023

Operating Leases
Right of use assets-operating leases	$	418,719		$	433,962

Operating lease liabilities	$	74,649		$	71,600
Operating lease liabilities noncurrent		376,239			382,559
Total operating lease liabilities	$	450,888		$	454,159

Finance Leases
Property and equipment	$	125,018		$	101,318
Accumulated depreciation		(44,346	)		(38,423	)
Property and equipment, net	$	80,672		$	62,895

Current maturities of long-term debt	$	5,282		$	3,050
Long-term debt		87,248			69,643
Total finance lease liabilities	$	92,530		$	72,693

Weighted Average remaining lease term, years
Operating leases		17.1			16.5
Finance leases		19.6			20.0

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

Future maturities of lease liabilities as of December 31, 2024 are as follows (in thousands):


	Operating Leases			Finance Leases
Year ending December 31,
2025	$	88,488		$	10,069
2026		79,309			10,074
2027		61,874			10,231
2028		50,009			10,391
2029		40,748			10,556
Later years		598,452			95,795
Total lease payments		918,880			147,116
less imputed interest		(467,992	)		(54,586	)
Total	$	450,888		$	92,530

We assumed approximately $24 million in finance lease obligations during 2024 and $1 million during each of 2023 and 2022. 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.