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Leases

9 Months Ended

Sep. 30, 2019

Lessee

The Company determines if an arrangement is a lease and classification as operating or financing at lease inception. Operating leases are included in operating lease ROU assets, accrued expenses and other current liabilities, and operating lease liabilities on our consolidated balance sheets. The Company does not have any leases classified as financing.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. Operating lease ROU assets are further offset by any prepaid rent, lease incentives and initial direct costs incurred. When a lease agreement does not provide an implicit rate, the Company utilizes its incremental borrowing rate based on the information available at commencement date in determining the present value of future minimum lease payments.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Variable lease payments include certain index-based changes in rent, certain nonlease components (such as maintenance and other services provided by the lessor), and other charges included in the lease. Variable lease payments are excluded from future minimum lease payments and expensed as incurred.

The Company elected the practical expedient to not separate lease and non-lease components for all classes of underlying assets in which it is the lessee and made a policy election to not account for leases with an initial term of 12 months or less on the balance sheet. These short-term leases are expensed on a straight-line basis over the lease term.

The Company has operating leases primarily for office space, buildings, and equipment. Our leases have remaining lease terms of one month to five years, some of which may include options to extend leases for up to fifteen years and some which may include options to terminate the leases within one year.

The Company's lease costs were as follows:



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
	(in thousands)

Operating lease cost	$	2,319	$	7,360
Sublease income	—		(84		)
Total lease cost	$	2,319	$	7,276

Leases recorded on the consolidated balance sheet consist of the following:



	September 30, 2019
	(in thousands)
Assets:
Operating lease right-of-use assets	$	26,251
Liabilities:
Current operating lease liabilities	10,349
Long-term operating lease liabilities	23,768
Total lease liabilities	$	34,117

Other information related to the Company's lease arrangements is as follows:



	Nine Months Ended September 30, 2019
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	9,523
ROU assets obtained in exchange for lease liabilities in non-cash transactions:
Operating lease assets obtained in exchange for operating lease liabilities	$	3,518
Weighted-average remaining lease term	3.29
Weighted-average discount rate⁽¹⁾	3.59		%

⁽¹⁾Discount rates used for existing operating leases upon adoption of Topic 842 were established based on remaining lease term as of January 1, 2019.

Maturities of lease liabilities are as follows:



	As of September 30, 2019
	(in thousands)
2019 (remaining 3 months)	$	2,852
2020	11,330
2021	10,261
2022	8,548
2023	3,321
Thereafter	2
Total minimum lease payments	$	36,314
Less imputed interest	2,197
Present value of minimum lease payments	$	34,117

During the nine months ended September 30, 2019, the Company entered into a sale and leaseback transaction in which we sold an office building for a gain of $2.0 million within the Marketing and reservation system line item on the consolidated statements of income and entered into a lease with the option to terminate after 2019. This lease is included in the tables above.

The Company adopted Topic 842 on January 1, 2019 using the optional transition method to present comparative periods prior to adoption date in accordance with Topic 840, including disclosure. The following table discloses future minimum lease payments in accordance with Topic 840:



	As of December 31, 2018
	(in thousands)
2019 (net of minimum sublease rentals of $124)	$	12,509
2020	10,638
2021	9,258
2022	8,866
2023	3,514
Thereafter	—
Total	$	44,785

In the third quarter of 2019, we entered into two office lease agreements with unrelated third-parties that we expect to account for as operating leases. These leases are not reflected in our consolidated balance sheets or in the table above as the leases have not commenced. A lease with an approximately 3-year term is expected to commence in the first quarter of 2020 and a lease with an approximately 10-year term is expected to commence in the third quarter of 2021.

Lessor

The Company leases to third-party tenants (i) an office building to a third-party tenant with a remaining lease term of less than two years and (ii) a restaurant space within an operating hotel with a remaining lease term of less than ten years. Income for the two leases comprises of fixed and fixed escalating lease payments, respectively, of $0.3 million and $0.8 million for the three and nine months ended September 30, 2019, respectively. Neither lease contains an option to purchase the underlying assets. The Company elected to not separate lease and nonlease components.

Related Party

The Company and family members of the Company's largest shareholder entered into an agreement that allows those family members to lease the Company aircraft from time to time for their personal use. The agreement provides for lease payments that contribute towards the fixed costs associated with the aircraft as well as reimbursement of the Company’s variable costs associated with operation of the aircraft, in compliance with, and to the extent authorized by, applicable regulatory requirements. The terms of the lease agreements are consistent with the terms of lease agreements that the Company has entered into with unrelated third parties for use of the aircraft. The Company received nothing pursuant to this arrangement during the three months ended September 30, 2019. During the nine months ended September 30, 2019, the Company received $12 thousand pursuant to this arrangement.

In December 2013, the Company's board of directors approved an arrangement between the Company and an entity controlled by the family members of the Company's largest shareholder to sublease approximately 2,200 square feet of office space located in Chevy Chase, Maryland. In May 2016, the sublease was amended for the expansion of the office space. The sublease was not renewed following April 2019. The sublease had a month-to-month term, with a 90-day notice period and annual lease payments totaling approximately $0.1 million. During the three months ended September 30, 2019, the Company received nothing pursuant to this arrangement. During the nine months ended September 30, 2019, the Company received approximately $49 thousand, in rent payments associated with this lease.

Leases