Leases

The Company has operating leases for office space and campus facilities. Some leases include options to terminate or extend for one or more years. These options are included in the lease term when it is reasonably certain that the option will be exercised. The APEI Segment leases corporate and administrative office space in Maryland and Virginia under operating leases that expire through June 2023. The HCN Segment leases administrative office space and five campuses in Ohio under operating leases that expire through June 2029.

Operating lease assets are ROU assets, which represent the right to use an underlying asset for the lease term, and operating lease liabilities which represent the obligation to make lease payments arising from the lease. Operating leases are included in the Operating lease assets, net, and Operating lease liabilities, current and long-term on the Consolidated Balance Sheet at March 31, 2019. These assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. When the lease does not provide an implicit rate, the Company uses an incremental borrowing rate based on information available at lease commencement to determine the present value of the lease payments. The ROU asset includes any lease payments made and excludes lease incentives.

Lease expense for operating leases is recognized on a straight-line basis over the lease term. There are no variable lease payments. Lease expense for the three months ended March 31, 2019 was $617,000. These costs are primarily related to long-term operating leases, but also include amounts for short-term leases with terms greater than 30 days that are not material.

At March 31, 2019, no leases exist that have not yet commenced and create significant rights and obligations for the Company.

The following tables present information about the amount, timing, and uncertainty of cash flows arising from the Company’s operating leases as of March 31, 2019 (dollars in thousands):



Maturity of Lease Liabilities	Lease Payments
2019 (remaining)	$	1,849
2020	2,517
2021	2,537
2022	2,481
2023	1,523
2024	566
2025 and beyond	2,239
Total future minimum lease payments	13,712
Less imputed interest	(2,099		)
Present value of operating lease liabilities	$	11,613



Balance Sheet Classification
Operating lease liabilities, current	$	1,925
Operating lease liabilities, long-term	9,688
Total operating lease liabilities	$	11,613



Other Information
Weighted average remaining lease term (in years)	6.2
Weighted average discount rate	5.1	%

Cash Flows

An initial ROU asset of $11.8 million was recognized as a non-cash asset addition with the adoption of the standard. There were no additional ROU assets recognized as non-cash asset additions during the three months ended March 31, 2019. Cash paid for amounts included in the present value of operating lease liabilities at adoption was $609,000 during the three months ended March 31, 2019 and is included in operating cash flows.