Sale-Leasebacks of Real Estate

12 Months Ended

Dec. 31, 2019

The Company’s outstanding sale-leaseback financing obligations of real estate-related long-lived assets as of December 31, 2019 and 2018 are as follows:



	Maturity	Interest Rate as of December 31, 2019	2019		2018
			(In thousands)
1 warehouse – 2010	7/2030	10.34%	$	18,994	$	19,265
11 warehouses – 2007	9/2027	7.00%-19.59%	96,765		99,655
Total sale-leaseback financing obligations			$	115,759	$	118,920

In September 2010, the Company entered into a transaction by which it assigned to an unrelated third party its fixed price “in the money” purchase option of $18.3 million on a warehouse it was leasing in Ontario, California. The purchase option was exercised in September 2010, and the Company simultaneously entered into a new 20-year lease agreement with the new owner and received $1.0 million of consideration to use towards warehouse improvements. Under the terms of the new lease agreement, the Company will exercise control over the asset for more than 90% of the asset’s remaining useful life, and it has a purchase option within the last six months of the initial lease term at 95% of the fair market value as of the date such option is exercised. The transaction was accounted for as a financing whereby the Company recognized a long-lived asset equal to the purchase price of $18.2 million, a receivable of $1.0 million for the additional consideration, and a financing obligation of $19.2 million. During 2019 and 2018, the principal balance was amortized by nominal amounts. The long-lived asset is being depreciated on a straight-line basis over its remaining economic useful life and a proportionate amount of each periodic rental payment is being charged to interest expense on the effective-interest-rate method.

In September 2007, the Company completed a sale-leaseback of 11 warehouses for gross proceeds of $170.7 million. Concurrent with the sale, the Company agreed to lease the properties for various initial terms of 10 to 20 years. The rent increases annually by 1.75%. The lease terms can be extended up to four times at the discretion of the Company, each for a five-year period. The leases are guaranteed by an unsecured indemnity from a related party and the Company had the ability to extend the lease through a period which exceeds 90.0% of the assets’ remaining useful lives. The transaction was accounted for as a financing with an amount of each periodic rental payment being charged to interest expense. The assets continue to be reflected as long-lived assets and depreciated over their remaining useful lives. In July 2013, the lease agreements for six of the 11 warehouses were amended. The amendments extended the expiration date on four of the warehouse leases to September 27, 2027, reduced the annual rent increases from 1.75% to 0.50% on five of the warehouse leases and released the guarantee by the unsecured indemnity from the related party. All of the 11 warehouses subject to the sale-leaseback transaction continue to be accounted for as a financing.

As of December 31, 2019, future minimum lease payments, inclusive of certain obligations to be settled with the residual value of related long-lived assets upon expiration of the lease agreement, of the sale-leaseback financing obligations are as follows:



Years Ending December 31:	(In thousands)
2020	$	17,087
2021	17,351
2022	17,619
2023	17,892
2024	18,170
Thereafter	115,090
Total minimum payments	203,209
Interest portion	(87,450		)
Present value of net minimum payments	$	115,759