13. LEASES

The Company utilizes operating and finance leases for the use of certain hospitals, medical office buildings, and medical equipment. All lease agreements generally require the Company to pay maintenance, repairs, property taxes and insurance costs, which are variable amounts based on actual costs incurred during each applicable period. Such costs are not included in the determination of the ROU asset or lease liability. Variable lease cost also includes escalating rent payments that are not fixed at commencement but are based on an index that is determined in future periods over the lease term based on changes in the Consumer Price Index or other measure of cost inflation. Most leases include one or more options to renew the lease at the end of the initial term, with renewal terms that generally extend the lease at the then market rate of rental payment. Certain leases also include an option to buy the underlying asset at or a short time prior to the termination of the lease. All such options are at the Company’s discretion and are evaluated at the commencement of the lease, with only those that are reasonably certain of exercise included in determining the appropriate lease term. The components of lease cost and rent expense for the three and nine months ended September 30, 2019 are as follows (in millions):


	Three Months Ended		Nine Months Ended
Lease Cost	September 30, 2019		September 30, 2019
Operating lease cost:
Operating lease cost	$	49	$	143
Short-term rent expense		28		87
Variable lease cost		3		13
Sublease income		(1)		(3)
Total operating lease cost	$	79	$	240

Finance lease cost:
Amortization of right-of-use assets	$	3	$	9
Interest on finance lease liabilities		2		6
Total finance lease cost	$	5	$	15

Supplemental balance sheet information related to leases was as follows (in millions):


	Balance Sheet Classification	September 30, 2019
Operating Leases:
Operating Lease ROU Assets	Other assets, net	$	621

Finance Leases:
Finance Lease ROU Assets	Property and equipment		180
Accumulated amortization	Accumulated depreciation and amortization		(59)
Current finance lease liabilities	Current maturities of long-term debt		7
Long-term finance lease liabilities	Long-term debt		115

Supplemental cash flow and other information related to leases as of and for the nine months ended September 30, 2019 are as follows (dollars in millions):


	Nine Months Ended
Other information	September 30, 2019
Cash paid for amounts included in the measurement
of lease liabilities:
Operating cash flows from operating leases	$	127
Operating cash flows from finance leases		6
Financing cash flows from finance leases		7
Right-of-use assets obtained in exchange for new
finance lease liabilities		2
Right-of-use assets obtained in exchange for new
operating lease liabilities		86
Weighted-average remaining lease term:
Operating leases		7 years
Finance leases		19 years
Weighted-average discount rate:
Operating leases		9.2	%
Finance leases		5.7	%

On September 19, 2019, the Company completed the sale and leaseback of four medical office buildings for net proceeds of $56 million to Carter Validus Mission Critical REIT II, Inc. The buildings, with a combined total of 285,337 square feet, are located in three states and support a wide array of diagnostic, medical and surgical services in an outpatient setting for the respective nearby hospitals. Based on the Company’s assessment of the control transfer principle in these leased buildings, the transaction did not qualify for sale treatment and the related leases have been recorded as financing obligations in the Company’s condensed consolidated balance sheet at September 30, 2019.

On December 22, 2016, the Company completed the sale and leaseback of ten medical office buildings for net proceeds of $159 million to HCP, Inc. The buildings, with a combined total of 756,183 square feet, are located in five states and support a wide array of diagnostic, medical and surgical services in an outpatient setting for the respective nearby hospitals. Because of the Company’s continuing involvement in these leased buildings, the transaction did not qualify for sale treatment and the related leases have been recorded as financing obligations in the Company’s condensed consolidated balance sheet at December 31, 2018. Upon adoption of ASC 842 on January 1, 2019, the Company reevaluated the classification of these financing arrangements utilizing the new accounting requirements for sale-leasebacks in ASC 842, concluding that these financing arrangements continue to not qualify for sale treatment and therefore should continue to be classified as financing obligations. At September 30, 2019, six of these financing obligations remain outstanding and are included in the table below, with the other four medical office buildings having been divested in conjunction with the sale of the related hospital entity.

Commitments relating to noncancellable operating and finance leases and financing obligations for each of the next five years and thereafter are as follows (in millions):


					Financing
Year Ending December 31,	Operating		Finance		Obligations
2019 (remaining three months)	$	63	$	3	$	4
2020		177		13		11
2021		133		11		12
2022		110		10		12
2023		87		17		12
Thereafter		274		164		236
Total minimum future payments		844		218		287
Less: Imputed interest		(210)		(96)		(130)
Total liabilities		634		122		157
Less: Current portion		(137)		(7)		(2)
Long-term liabilities	$	497	$	115	$	155

As previously disclosed in the Company’s 2018 Form 10-K, which followed the lease accounting in effect prior to adoption of ASC 842, future commitments relating to noncancellable operating and capital leases and financing obligations for the five years and period thereafter as of December 31, 2018 were as follows (in millions):


						Financing
Year Ending December 31,	Operating (1)			Capital		Obligations
2019	$	188		$	12	$	12
2020		157			10		9
2021		121			8		10
2022		98			7		10
2023		79			14		10
Thereafter		234			121		106
Total minimum future payments	$	877			172		157
Less: Imputed interest					(80)		(18)
Total capital lease and financing obligations			-		92		139
Less: Current portion					(8)		(5)
Long-term capital lease and financing obligations			-	$	84	$	134

(1) Minimum lease payments have not been reduced by minimum sublease rentals due in the future, which are considered immaterial.

As of September 30, 2019, there were approximately $31 million of assets underlying approved but pending leases that have not yet commenced, primarily for medical equipment.