LEASES

9 Months Ended

Sep. 30, 2019

Operating Leases

The Company is committed under various operating lease agreements primarily related to submerged tidelands, property and equipment.

Hard Rock Biloxi has an agreement with the State of Mississippi for the lease and use of approximately five acres of submerged tidelands for a primary term of thirty years, expiring September 30, 2037. Upon expiration of the primary term, Hard Rock Biloxi will have an option to extend the lease for a renewal term of thirty years; the renewal option has not been included in the calculation of the lease liability or right of use asset as the Company is not reasonably certain to exercise the option. Annual rent for the lease, as of September 30, 2019, is approximately $1.2 million and adjusts annually by the increase in the consumer price index (“CPI”). Future changes to the CPI are treated as variable lease payments and are recognized in the period in which the obligation for those payments is incurred.

Hard Rock Biloxi also has a Lease and Air Space agreement with the City of Biloxi. The agreement grants the Company rights to a parking area, and to the airspace above two defined parcels of land along with certain support structure rights for the construction of a parking garage. The arrangement has a 40-year term expiring November 18, 2043 with one 25-year renewal option at the Company’s option; the renewal option has not been included in the calculation of the lease liability or right of use asset as the Company is not reasonably certain to exercise the option. Monthly rent escalates every 5 years based on CPI, and we are responsible for property taxes. Future changes to the CPI are treated as variable lease payments and are recognized in the period in which the obligation for those payments is incurred.

Certain of the Company’s subsidiaries lease office space, parking space, memorabilia and equipment under agreements classified as operating leases that expire on various dates through 2027. Certain of the Company’s leases include renewal options and escalation clauses; renewal options have not been included in the calculation of the lease liabilities and right of use assets as the Company is not reasonably certain to exercise the options. Discount rates used to determine the present value of the lease payments are based on a credit-adjusted secured borrowing rate commensurate with the term of the lease.

Variable expenses generally represent the Company’s share of the landlord’s operating expenses and CPI increases. The Company does not have any leases classified as financing leases.

During the nine months ended September 30, 2019, three equipment leases were terminated via purchase of the underlying assets.

At September 30, 2019, the Company had operating lease liabilities of approximately $17.5 million and right of use assets of approximately $17.5 million, which were included in the condensed consolidated balance sheet.

As of September 30, 2019, the weighted average remaining lease term was 16.6 years, with a weighted-average discount rate of 6.7%.

The following summarizes quantitative information about the Company’s operating leases:



(in thousands)	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating leases:
Operating lease cost	$	544	$	1,885
Variable lease cost	8		44
Operating lease expense	552		1,929
Short-term lease expense	1,205		2,088
Total lease expense	$	1,757	$	4,017

Supplemental cash flow and other information for the three and nine months ended September 30, 2019, related to operating leases was as follows:



(In thousands)	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Cash paid for amounts included in the lease liability - operating cash flows from operating leases	$	544	$	1,897
Right of use assets obtained in exchange for operating lease liabilities			$	18,771

As of September 30, 2019, future minimum rental commitments under noncancelable operating leases are as follows:



(in thousands)
Remaining 2019	$	544
2020	2,157
2021	2,130
2022	1,846
2023	1,803
2024	1,753
Thereafter	19,503
Total	29,736
Less: present value discount	(12,260		)
Operating lease obligations	$	17,476

As of December 31, 2018, as calculated under ASC 840, Leases, future undiscounted minimum rental commitments under noncancelable operating leases are as follows:



(in thousands)
2019	$	2,941
2020	2,308
2021	1,688
2022	1,627
2023	1,653
Thereafter	27,252
	$	37,469

The Company also has leasing arrangements with third-party lessees at its properties. Leasing arrangements for which the Company acts as a lessor are not deemed material as of September 30, 2019.