Leases

3 Months Ended

Mar. 31, 2022

Sonder leases buildings or portions of buildings for guest usage, warehouses to store furniture, and corporate offices under noncancellable operating lease agreements, which expire through 2039. Sonder is required to pay property taxes, insurance and maintenance costs for certain of these facilities.

Sonder adopted ASC 842 as of January 1, 2022 using the modified retrospective approach. This approach allows entities to either apply the new lease standard to the beginning of the earliest period presented or only to the condensed consolidated financial statements in the period of adoption without restating prior periods. Sonder has elected to apply the new guidance at the date of adoption without restating prior periods. In addition, Sonder elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed it to carry forward the historical determination of contracts as leases, lease classification and not reassess initial direct costs for historical lease arrangements. Accordingly, previously reported financial statements, including footnote disclosures, have not been recast to reflect the application of the new standard to all comparative periods presented.

Sonder has lease agreements with lease and non-lease components, including embedded leases, and has elected not to utilize the practical expedient to account for lease and non-lease components together, rather Sonder is accounting for the lease and non-lease components separately on the consolidated financial statements.

Operating lease right-of-use (ROU) assets are included within operating lease right-of-use assets in the condensed consolidated balance sheet. The corresponding operating lease liabilities are included within current operating lease liabilities and non-current operating lease liabilities on Sonder’s condensed consolidated balance sheet as of March 31, 2022. ROU assets represent Sonder’s right to use an underlying asset for the lease term and lease liabilities represent Sonder’s obligation to make lease payments arising from the lease.

Adoption of the new lease standard had a material impact on Sonder’s condensed consolidated financial statements. The most significant impacts were the (i) recording of ROU assets of $1.1 billion, and (ii) recording lease liabilities of $1.2 billion, as of January 1, 2022 on the condensed consolidated balance sheets and condensed consolidated statement of cash flows. Sonder also reclassified prepaid expenses of $0.2 million and the deferred rent balance, including tenant improvement allowances, and other liability balances of $31.8 million relating to Sonder’s existing lease arrangements as of December 31, 2021, into the ROU asset balance as of January 1, 2022. The standard did not materially impact Sonder’s condensed consolidated statement of operations and comprehensive income (loss).

Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Sonder’s assessed lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. Certain operating leases provide for annual increases to lease payments based on an index or rate. Sonder estimates the annual increase in lease payments based on the index or rate at the lease commencement date, for both Sonder’s historical leases and for new leases commencing after January 1, 2022.

Components of operating lease expense were as follows (in thousands):


	Three Months Ended
	March 31, 2022
Operating lease cost	$	62,947
Short-term lease cost	2
Variable lease cost	643
Total operating lease cost	$	63,592

Supplemental information related to operating leases was as follows (in thousands):


	Three Months Ended
	March 31, 2022
Cash payments for operating leases	$	49,765
New operating lease ROU assets obtained in exchange for operating lease liabilities	114,900
Weighted average remaining lease term	7.59
Weighted average discount rate	9.3		%

As of March 31, 2022, remaining maturities of operating lease obligations are as follows (in thousands):


As of March 31, 2022	Amount
remaining nine months of 2022	$	185,445
2023	285,977
2024	246,659
2025	229,232
2026	199,287
2027	152,416
Thereafter	448,309
Gross lease payments	1,747,325
Less imputed interest	(506,415)
Total operating lease obligations, net	$	1,240,910

Sonder does not have material lease receivables from noncancellable lease contracts that would reduce the total contractual operating lease obligations. As of March 31, 2022, we have entered into leases that have not yet commenced with future lease payments totaling $1.75 billion, excluding purchase options, that are not yet recorded on our condensed consolidated balance sheets and are not reflected in the above table. These leases will commence between 2022 and 2026 with non-cancelable lease terms of one to 16 years.

Rental expense for operating leases for the three months ended March 31, 2022 and 2021 was $65.1 million and $37.9 million, respectively, of which $63.6 million and $35.9 million, respectively, is recognized in cost of revenues, $0.7 million and $0.9 million, respectively, in operations and support, and $0.8 million and $1.1 million, respectively, in general and administrative.

Supplemental Information for Comparative Periods

As of December 31, 2021, prior to the adoption of Topic 842, future minimum payments lease payments under non-cancelable operating leases were as follows (in millions):


As of December 31, 2021	Amount
2022	$	279,093
2023	366,299
2024	418,156
2025	433,541
2026	403,582
Thereafter	1,641,237
Total minimum future lease payments	$	3,541,908