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Leases

9 Months Ended

Sep. 30, 2019

The Company leases parking facilities, office space, warehouses, vehicles and equipment and determines if an arrangement is a lease at inception. The Company rents or subleases certain real estate to third parties. The Company's sublease portfolio consists of operating leases for space within our leased parking facilities.

Prior to January 1, 2019, the Company recognized lease expense related to operating leases on a straight-line basis over the terms of the leases and, accordingly, recorded the difference between cash rent payments and recognition of rent expense as a deferred rent liability or prepaid rent. Landlord-funded leasehold improvements were also recorded as deferred rent liabilities and were amortized as a reduction of rent expense over the noncancelable term of the related operating lease. For leases that included one or more options to renew, the exercise of such renewal options is at the Company's sole discretion or mutual agreement. Certain of the Company's lease agreements included variable rent consisting primarily of payments that are a percentage of parking services revenue based on contractual levels and rental payments adjusted periodically for inflation.

Upon adoption of Topic 842, ROU assets represent the Company's "right-of-use" over an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The ROU asset includes cumulative prepaid or accrued rent on adoption date, unamortized lease incentives, unamortized initial direct costs, unamortized favorable acquired lease contracts, net and unfavorable acquired lease contracts, net initially recognized prior to adoption of Topic 842. The short term lease exception has been applied to leases with an initial term of 12 months or less and these leases are not recorded on the balance sheet.

Service concession arrangements within the scope of ASU No. 2017-10, Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services, are excluded from the scope of Topic 842. Lease costs associated with these arrangements is recorded as a reduction of revenue. See Note 5. Revenue for further discussion.

As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. Lease expense is recognized on a straight-line basis over the lease term.

For leases that include one or more options to renew, the exercise of such renewal options is at the Company's sole discretion or mutual agreement. Equipment and vehicle leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Variable lease components comprising of payments that are a percentage of parking services revenue based on contractual levels and rental payments adjusted periodically for inflation are not included in lease liability. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The components of leased assets and liabilities and classification on the Condensed Consolidated Balance Sheet as of September 30, 2019 were as follows:



(millions) (unaudited)	Classification	September 30, 2019
Assets
Operating	Right-of-use assets	$	444.5
Finance	Leasehold improvements, equipment and construction in progress, net ^(a)	17.7
Total leased assets		$	462.2
Liabilities
Current
Operating	Short-term lease liability	$	117.1
Finance	Current portion of long-term obligations under credit facility and other long-term borrowings	2.8
Noncurrent
Operating	Long-term lease liability	338.4
Finance	Other long-term borrowings	15.1
Total lease liabilities		$	473.4

^(a) Finance lease assets are recorded net of accumulated amortization of $2.1 million as of September 30, 2019

The components of lease cost and classification on the Condensed Consolidated Statement of Income for the three and nine months ended September 30, 2019 were as follows:



		Three Months Ended		Nine Months Ended
(millions) (unaudited)	Classification	September 30, 2019		September 30, 2019
Operating lease cost ^(a)	Cost of services - lease type contracts	$	61.4	$	177.5
Operating lease cost ^{(a) (b)}	General and administrative expenses	1.6		3.9
Finance lease cost
Amortization of leased assets	Depreciation and amortization	0.9		1.7
Interest on lease liabilities	Interest expense	0.2		0.6
Net lease cost		$	64.1	$	183.7

^(a) Includes short-term leases and variable lease costs

^(b) Operating lease cost included in General and administrative expenses are related to leases for office space

Rent expense on operating leases was $63.0 million and $181.4 million for the three and nine months ended September 30, 2019, respectively. The following table presents information on short term and variable lease costs:



	Three Months Ended		Nine Months Ended
(millions) (unaudited)	September 30, 2019		September 30, 2019
Short-term lease cost	$	7.5	$	25.4
Variable lease cost	14.9		43.3
Total short term and variable lease cost	$	22.4	$	68.7

Sublease income generated during the three and nine months ended September 30, 2019 was not material.

The Company has entered into operating lease arrangements as of September 30, 2019 that are effective for future periods. The total amount of right-of-use assets and lease liabilities related to these arrangements are immaterial.

Maturities of lease liabilities as of September 30, 2019 were as follows:



(millions) (unaudited)	Operating Leases Liabilities		Finance Leases Liabilities		Total
2019	$	36.0	$	0.9	$	36.9
2020	131.0		3.6		134.6
2021	100.9		3.6		104.5
2022	80.6		3.1		83.7
2023	54.1		2.3		56.4
After 2024	126.0		7.1		133.1
Total lease payments	528.6		20.6		549.2
Less: Imputed interest	73.1		2.7		75.8
Present value of lease liabilities	$	455.5	$	17.9	$	473.4

Future sublease income for the above periods shown was excluded as the amounts are not material.

Lease term and discount rate information was as follows:



(unaudited)	September 30, 2019
Weighted-average remaining lease term (years)
Operating leases	5.6
Finance leases	7.3
Weighted-average discount rate
Operating leases	4.9	%
Finance leases	5.0	%

Supplemental cash flow information related to leases was as follows:



	Nine Months Ended
(millions) (unaudited)	September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	135.9
Operating cash flows from finance leases	0.6
Financing cash flows from finance leases	1.6
Leased assets obtained in exchange for new operating liabilities	50.1
Leased assets obtained in exchange for new finance lease liabilities	$	5.2

Leases