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Relationship with Universal Health Realty Income Trust and Other Related Party Transactions | 12 Months Ended
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Dec. 31, 2020
Related Party Transactions [Abstract] |
Relationship with Universal Health Realty Income Trust and Other Related Party Transactions | 9) RELATIONSHIP WITH UNIVERSAL HEALTH REALTY INCOME TRUST AND OTHER RELATED PARTY TRANSACTIONS Relationship with Universal Health Realty Income Trust: At December 31, 2020, we held approximately 5.7% of the outstanding shares of Universal Health Realty Income Trust (the “Trust”). We serve as Advisor to the Trust under an annually renewable advisory agreement, which is scheduled to expire on December 31st of each year, pursuant to the terms of which we conduct the Trust’s day-to-day affairs, provide administrative services and present investment opportunities. The advisory agreement was renewed by the Trust for 2021 at the same rate as the prior three years, providing for an advisory computation at 0.70% of the Trust’s average invested real estate assets. We earned an advisory fee from the Trust, which is included in net revenues in the accompanying consolidated statements of income, of approximately $4.1 million during 2020, $4.0 million during 2019 and $3.8 million during 2018. In addition, certain of our officers and directors are also officers and/or directors of the Trust. Management believes that it has the ability to exercise significant influence over the Trust, therefore we account for our investment in the Trust using the equity method of accounting. Our pre-tax share of income from the Trust was $1.1 million during each of 2020 and 2019 and $1.4 million during 2018, which are included in other income, net, on the accompanying consolidated statements of income for each year. We received dividends from the Trust amounting to $2.2 million during 2020 and $2.1 million during each of 2019 and 2018. The carrying value of our investment in the Trust was $5.4 million and $6.4 million at December 31, 2020 and 2019, respectively, and is included in other assets in the accompanying consolidated balance sheets. The market value of our investment in the Trust was $50.6 million at December 31, 2020 and $92.4 million at December 31, 2019, based on the closing price of the Trust’s stock on the respective dates. The Trust commenced operations in 1986 by purchasing certain hospital properties from us and immediately leasing the properties back to our respective subsidiaries. Most of the leases were entered into at the time the Trust commenced operations and provided for initial terms of 13 to 15 years with up to six additional 5-year renewal terms. Each lease also provided for additional or bonus rental, as discussed below. The base rents are paid monthly and the bonus rents are computed and paid on a quarterly basis, based upon a computation that compares current quarter revenue to a corresponding quarter in the base year. The leases with those subsidiaries are unconditionally guaranteed by us and are cross-defaulted with one another. Total rent expense under the operating leases on the three wholly-owned hospital facilities with the Trust was $17.1 million, $16.4 million and $16.0 million during 2020, 2019 and 2018, respectively. Pursuant to the terms of the three wholly-owned hospital leases with the Trust, we have the option to renew the leases at the lease terms described above and below by providing notice to the Trust at least 90 days prior to the termination of the then current term. We also have the right to purchase the respective leased hospitals at their appraised fair market value upon any of the following: (i) at the end of the lease terms or any renewal terms; (ii) upon one month’s notice should a change of control of the Trust occur, or; (iii) within the time period as specified in the lease in the event that we provide notice to the Trust of our intent to offer a substitution property/properties in exchange for one (or more) of the three hospital properties leased from the Trust should we be unable to reach an agreement with the Trust on the properties to be substituted. In addition, we have rights of first refusal to: (i) purchase the respective leased facilities during and for 180 days after the lease terms at the same price, terms and conditions of any third-party offer, or; (ii) renew the lease on the respective leased facility at the end of, and for 180 days after, the lease term at the same terms and conditions pursuant to any third-party offer. The table below details the renewal options and terms for each of our three wholly-owned acute care hospital facilities leased from the Trust:
Hospital Name |  |  | Annual Minimum Rent |  |  | End of Lease Term |  | Renewal Term (years) |  |
McAllen Medical Center |  |  | $ | 5,485,000 |  |  | December, 2026 |  |  | 5 |  | (a)
Wellington Regional Medical Center |  |  | $ | 3,030,000 |  |  | December, 2021 |  |  | 10 |  | (b)
Southwest Healthcare System, Inland Valley Campus |  |  | $ | 2,648,000 |  |  | December, 2021 |  |  | 10 |  | (b)
(a) | We have one 5-year renewal option at existing lease rates (through 2031).
(b) | We have two 5-year renewal options at fair market value lease rates (2022 through 2031).
The existing lease on Southwest Healthcare System, Inland Valley Campus is scheduled to expire on December 31, 2021 and we are considering terminating the lease at that time. As permitted pursuant to the terms of the lease, we have the right to purchase the leased property at its appraised fair market value at the end of the existing lease term. However, we are planning to offer the Trust potential substitution properties, with a fair market value substantially equal to that of the existing leased property, in exchange for the Inland Valley Campus. We expect to submit our proposal to the Trust, which is subject to the Trust’s approval, during the first quarter of 2021. Should a property substitution agreement be reached with the Trust, we anticipate that the transaction would be effective December 31, 2021, upon expiration of the existing lease on the Inland Valley Campus. We can provide no assurance that we will ultimately agree on a property substitution with the Trust in connection with the Inland Valley Campus. In addition, certain of our subsidiaries are tenants in several medical office buildings (“MOBs”) and two free-standing emergency departments owned by the Trust or by limited liability companies in which the Trust holds 95% to 100% of the ownership interest. During the third quarter of 2019, the Trust commenced construction on a new 75,000 rentable square feet MOB that is located on the campus of Texoma Medical Center, a hospital that is owned and operated by one of our subsidiaries. The construction on this MOB was substantially completed in December, 2020. In connection with this MOB, a master flex lease was executed between a wholly-owned subsidiary of ours and a Trust limited partnership that owns the MOB. Pursuant to the terms of this master flex lease, our subsidiary will master lease approximately 50% of the rentable square feet of the MOB, allocated to specific floors of the building, which could be reduced during the term if certain conditions are met, for a ten-year term at an initial minimum annual rent of $644,000. As of December 31, 2020, as a result of fully executed leases between the Trust and third-party tenants, the master lease flex commitment has been reduced to 5,840 rentable square feet on the third floor of the MOB. During the third quarter of 2019, a joint-venture agreement between us and a non-related third-party was finalized in connection with the development of a newly constructed behavioral health care facility located in Clive, Iowa. Pursuant to the terms of the agreement, we hold a majority ownership interest in the venture and will act as manager of the facility when completed and opened. This joint-venture also entered into an agreement with the Trust whereby a wholly-owned subsidiary of the Trust constructed the 108-bed behavioral health care hospital, which was substantially completed in December, 2020 and the property received a temporary certificate of occupancy on December 31, 2020. Upon completion and issuance of the temporary certificate of occupancy, the joint venture lease from the Trust commenced pursuant to a 20-year, triple net lease with five, 10-year renewal options. Construction of the approximately 82,000 square foot hospital was managed by a wholly-owned subsidiary of ours for an aggregate fee of approximately $750,000. The approximate cost of the project is estimated at $35.1 million and the initial annual rent is estimated at approximately $2.5 million. Other Related Party Transactions: In December, 2010, our Board of Directors approved the Company’s entering into supplemental life insurance plans and agreements on the lives of our chief executive officer (“CEO”) and his wife. As a result of these agreements, as amended in October, 2016, based on actuarial tables and other assumptions, during the life expectancies of the insureds, we would pay approximately $28 million in premiums, and certain trusts owned by our CEO, would pay approximately $9 million in premiums. Based on the projected premiums mentioned above, and assuming the policies remain in effect until the death of the insureds, we will be entitled to receive death benefit proceeds of no less than approximately $37 million representing the $28 million of aggregate premiums paid by us as well as the $9 million of aggregate premiums paid by the trusts. In connection with these policies, we paid approximately $1.1 million, net, in premium payments during each of 2020, 2019 and 2018. In August, 2015, Marc D. Miller, our President and Chief Executive Officer and member of our Board of Directors, was appointed to the Board of Directors of Premier, Inc. (“Premier”), a healthcare performance improvement alliance. During 2013, we entered into a new group purchasing organization agreement (“GPO”) with Premier. In conjunction with the GPO agreement, we acquired a minority interest in Premier for a nominal amount. During the fourth quarter of 2013, in connection with the completion of an initial public offering of the stock of Premier, we received cash proceeds for the sale of a portion of our ownership interest in the GPO. Also in connection with this GPO agreement, we received shares of restricted stock of Premier which vest ratably over a seven-year period (2014 through 2020), contingent upon our continued participation and minority ownership interest in the GPO. During the third quarter of 2020, we entered into an agreement with Premier pursuant to the terms of which, among other things, our ownership interest in Premier was converted into shares of Class A Common Stock of Premier. We have elected to retain a portion of the previously vested shares of Premier, the market value of which is included in other assets on our consolidated balance sheet. Based upon the closing price of Premier’s stock on each respective date, the market value of our shares of Premier on which the restrictions have lapsed was $78 million as of December 31, 20 20 and $70 million as of December 31, 201 9. The $8 million increase in market value at December 31, 20 20, as compared to December 31, 201 9, is the result of $12 million of additional vested shares and $4 million of de creased market value. The $4 million decrease in market value of our vested Premier shares since December 31, 2020 was recorded as an unrealized loss and included in “Other (income) expense, net” in our consolidated statements of income for the year ended December 31, 2020. Additionally, during 2020, Premier declared a quarterly cash dividend during each of the third and fourth quarters of $0.19 per share per quarter. Our share of the dividends for the year ended December 31, 2020 is approximately $800,000 and is included in “Other (income) expense, net” in our condensed consolidated statements of income for the year ended December 31, 2020. A member of our Board of Directors and member of the Executive Committee and Finance Committee is a partner in Norton Rose Fulbright US LLP, a law firm engaged by us for a variety of legal services. The Board member and his law firm also provide personal legal services to our Executive Chairman and acts as trustee of certain trusts for the benefit of our Executive Chairman and his family.

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- Definition The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (d) -URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39549-107864 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39549-107864 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39549-107864 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -URI http://asc.fasb.org/topic&trid=2122745 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39691-107864 + Details
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