Leases

6 Months Ended

Jun. 30, 2019

On January 1, 2019, we adopted ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), as described in Note 2, using the transition method outlined in ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. The adoption of ASU 2016-02 resulted in no cumulative adjustment to accumulated deficit as our lease portfolio consists solely of operating leases. The comparative periods presented in our Condensed Consolidated Financial Statements are presented in accordance with ASC 840, Leases and do not reflect the impact of ASU 2016-02. On the date of adoption, January 1, 2019, we recorded right-of-use assets of $5.0 million and lease liabilities of $5.3 million related to our portfolio of operating leases (see Note 18 for balances as of June 30, 2019).

We elected the following practical expedients, as provided under the applicable transition guidance:


•	Package of practical expedients, which, among other things, allows us to carry forward our prior lease classifications under ASC 840, Leases.


•	Recognized lease payments on a straight-line basis over the lease term for all leases with a term of 12 months or less and were not classified on the balance sheet.

Our administrative offices, located in Virginia, Florida and Cancún, are leased under various lease agreements that extend for varying periods through 2025, with the option to extend our Cancún and Florida office leases through 2026 and 2030, respectively. The extension options are reasonably certain to be exercised and included in the amounts recorded. Our administrative offices contain lease components (e.g., fixed rent payments) and non-lease components (e.g., common-area maintenance, shared service costs, real estate taxes and insurance costs), which we account for separately. The lease components and non-lease components associated with our administrative offices represent the majority of our lease expense and variable lease expense, respectively.

Our minimum future rents payable under non-cancelable operating leases with third parties and related parties as of June 30, 2019 were as follows ($ in thousands):



	As of June 30, 2019
Remainder of 2019	$	481
2020	991
2021	1,036
2022	1,074
2023	786
2024	652
Thereafter	2,928
Total minimum future lease payments	7,948
Less: imputed interest	(1,373		)
Total	$	6,575

Our minimum future rents, at December 31, 2018, payable under non-cancelable operating leases with third parties and related parties were as follows ($ in thousands):



	As of December 31, 2018
2019	$	1,199
2020	1,031
2021	1,016
2022	1,044
2023	745
Thereafter	3,394
Total	$	8,429

The following table presents the components of lease expense for the three and six months ended June 30, 2019 and supplemental cash flow information for the six months ended June 30, 2019 ($ in thousands):



	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Lease expense ⁽¹⁾⁽²⁾	$	826	$	1,306

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases			$	307

________

⁽¹⁾ Includes variable lease and short term lease expenses, which are considered individually immaterial. Our lease expense is reported in direct expense and selling, general and administrative expense in the Condensed Consolidated Statements of Operations depending on the nature of the lease.

⁽²⁾ Lease expense under ASC 840, Leases, related to our non-cancelable operating leases, including variable lease cost, was $0.6 million and $1.1 million for the three and six months ended June 30, 2018, respectively.

The following table presents other relevant information related to our leases for the six months ended June 30, 2019:



Weighted-average remaining lease term	8.34 years
Weighted-average discount rate ⁽¹⁾	4.54	%

________

⁽¹⁾ The discount rates applied to each lease reflects our estimated incremental borrowing rate.

We rent certain real estate to third parties for office and retail space within our hotels. Our lessor contracts are considered operating leases and generally have a contractual term of one to three years. The following table presents our rental income for the three and six months ended June 30, 2019 ($ in thousands):



Leases	Financial Statement Classification	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease income ⁽¹⁾	Non-package revenue	$	1,245	$	2,716

________

⁽¹⁾ Includes variable lease revenue, which is typically calculated as a percentage of our tenant's net sales.