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LEASES

9 Months Ended

Sep. 30, 2020

LEASES:

Except as described below, there have been no significant changes to the nature of the Company's leases since December 31, 2019, which are described in Note 9 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2019.

As part of the Annadale acquisition (see Note 17), a real estate lease was acquired resulting in the recognition of an ROU asset and lease liability upon acquisition of $3.1 million. This arrangement is classified as a finance lease and will be amortized over the lease term of 35 years. As of September 30, 2020, SJI recognized an ROU asset and a lease liability of $3.0 million and $3.1 million, respectively, for this lease. The remainder of SJI's and SJG's real estate leases, which are comprised primarily of office space and payment centers, are classified as operating leases and represent approximately 91% and 68%, respectively, of operating lease liabilities and generally have a lease term between 5 and 15 years.

Other operating leases primarily consist of fleet vehicles (SJI only), communication towers, and general office equipment, each with various lease terms ranging between 3 and 25 years. As of September 30, 2020 and December 31, 2019, the operating lease ROU asset was $1.6 million and $1.9 million, respectively, and the lease liability balance was $1.6 million and $1.9 million, respectively, at SJI. The ROU assets and lease liabilities at SJG were not material. SJI does not have any contracts where it is considered the lessor (see "MTF" below).

The maturity of the Company’s operating lease and finance lease liabilities are as follows (in thousands):


	As of September 30, 2020
	SJI Consolidated Operating Leases		SJI Consolidated Finance Leases		SJG Operating Leases
2020 (excluding the nine months ended September 30, 2020)	$	206	$	36	$	23
2021	534		145		39
2022	348		145		21
2023	190		145		19
2024	165		145		12
Thereafter	235		6,557		102
Total lease payments	1,678		7,173		216
Less imputed interest	109		4,122		28
Total lease liabilities	$	1,569	$	3,051	$	188
Included in the condensed consolidated balance sheet
Current lease liabilities (included in Other Current Liabilities)	$	581	$	—	$	49
Long-term lease liabilities (included in Other Noncurrent Liabilities)	988		3,051		139
Total lease liabilities	$	1,569	$	3,051	$	188

SJG does not have any finance leases.

The total operating lease costs, the components of finance lease costs, and variable lease costs for SJI were as follows (in thousands):


	Three months ended September 30, 2020		Nine months ended September 30, 2020
SJI (includes SJG and all other consolidated subsidiaries):
Total operating lease cost	$	364	$	983
Finance Lease cost:
Amortization of ROU assets	10		10
Interest expense	18		18
Variable lease cost	190		491
Total lease cost	$	582	$	1,502


	Three months ended September 30, 2019		Nine months ended September 30, 2019
SJI (includes SJG and all other consolidated subsidiaries):
Total operating lease cost	$	717	$	2,317



Variable lease cost	270		1,070
Total lease cost	$	987	$	3,387

The total operating lease costs for SJG were not material. SJG does not have any finance lease costs or variable lease costs.

Short-term lease costs were not material for either SJI or SJG. Neither SJI nor SJG had any sublease income during the three and nine months ended September 30, 2020 and 2019.

Neither SJI nor SJG have leases with related parties or leveraged lease arrangements. There are no leases that have not yet commenced but that create significant rights and obligations.

The supplemental cash flow information related to leases for SJI (including SJG and all other consolidated subsidiaries) were as follows (in thousands):


	Three months ended September 30, 2020		Nine months ended September 30, 2020
Operating cash flows from operating leases	$	250	$	980


	Three months ended September 30, 2019		Nine months ended September 30, 2019
Operating cash flows from operating leases	$	430	$	1,230

Operating and financing cash flows from finance leases for SJI were not material for the three and nine months ended September 30, 2020. Operating cash flows from operating leases for SJG were not material for the three and nine months ended September 30, 2020.

Supplemental Non-Cash Disclosures

The following table represents the weighted-average remaining lease term and weighted-average discount rate:


Weighted average remaining lease term						September 30, 2020
SJI (includes SJG and all other consolidated subsidiaries):
Operating lease						4.6 years
Finance lease						34.9 years
SJG:
Operating lease						9.5 years

Weighted average discount rate						September 30, 2020
SJI (includes SJG and all other consolidated subsidiaries):
Operating lease						3.1%
Finance lease						5.0%
SJG:
Operating lease						3.0%

MTF

As of December 31, 2019, Marina was considered to be the lessor of certain thermal energy generating property and equipment under an operating lease which was set to expire in May 2027. As of December 31, 2019, the carrying costs of this property and equipment under operating lease was $68.9 million (net of accumulated depreciation of $40.6 million), and is included in Assets Held for Sale in the condensed consolidated balance sheets. As discussed in Note 1, MTF was sold to a third party buyer in February 2020, and as a result, Marina no longer is the lessor of this property, and no longer has future rentals or commitments.

LEASES