Leases

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Leases

LEASES

Leasing Accounting Pronouncement Adoption

On January 1, 2019, the Company adopted ASU No. 2016-02 - Leases (Topic 842) applying the modified retrospective method and the option presented under ASU 2018-11 to transition only active leases as of January 1, 2019 with a cumulative effect adjustment as of that date. All comparative periods prior to January 1, 2019 retain the financial reporting and disclosure requirements of ASC 840. The Company elected the package of practical expedients permitted under the transition guidance within the new standard. The package of three expedients includes: 1) the ability to carry forward the historical lease classification, 2) the elimination of the requirement to reassess whether existing or expired agreements contain leases, and 3) the elimination of the requirement to reassess initial direct costs. The Company also elected the practical expedient related to short-term leases without purchase options reasonably certain to exercise, allowing it to exclude leases with terms of less than twelve (12) months from capitalization for all asset classes. The Company did not elect the hindsight practical expedient when determining the lease terms. The adoption of the new standard resulted in the recording of right-of-use (“ROU”) assets and lease liabilities of $128,890 and $153,676, respectively, as of January 1, 2019. The difference between the ROU assets and lease liabilities reflects the reclassification of historical deferred rent balances of approximately $22,881, and tenant improvement receivable of $355 as adjustments to the ROU asset balances, and an adjustment that increased accumulated deficit by $1,550 to recognize the impairment in ROU assets for asset groups previously identified as being impaired. The standard did not materially impact the Company’s consolidated net earnings and had no impact on cash flows. The new standard had no material impact on liquidity and had no impact on the Company’s debt-covenant compliance under its current debt agreements.

Leasing Policies

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease ROU assets and lease liabilities on the Company’s balance sheets. Finance leases are included in investments in real estate, net, property, plant and equipment and current and long-term portions of notes payable and long-term debt on the Company’s balance sheets.

ROU assets represent the Company’s right to use an underlying asset for the duration of the lease term. Lease liabilities represent the Company’s obligation to make lease payments as determined by the lease agreement. Lease liabilities are recorded at commencement for the net present value of future lease payments over the lease term. The discount rate used is generally the Company’s estimated incremental borrowing rate unless the lessor’s implicit rate is readily determinable. Discount rates are calculated periodically to estimate the rate the Company would pay to borrow the funds necessary to obtain an asset of similar value, over a similar term, with a similar security. ROU assets are recorded and recognized at commencement for the lease liability amount, initial direct costs incurred and is reduced for lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term. Finance lease cost is recognized on a straight-line basis over the shorter of the useful life of the asset and the lease term.

The Company has lease agreements with lease and non-lease components; the Company has elected the accounting policy to combine lease and non-lease components for all underlying asset classes.

Leases

The Company has operating and finance leases for corporate and sales offices, and certain vehicles and equipment. The leases have remaining lease terms of one year to 15 years, some of which include options to extend for up to 5 years, and some of which include options to terminate the leases within one year. However, the Company in general is not reasonably certain to exercise options to renew or terminate, and therefore renewal and termination options are not considered in the lease term or the ROU asset and lease liability balances. The Company’s lease population includes purchase options on equipment leases that are included in the lease payments when reasonably certain to be exercised. The Company’s lease population does not include any residual value guarantees. The Company’s lease population does not contain any material restrictive covenants.

The Company has leases with variable payments, most commonly in the form of Common Area Maintenance (“CAM”) and tax charges which are based on actual costs incurred. These variable payments were excluded from the ROU asset and lease liability balances since they are not fixed or in-substance fixed payments. Variable payments are expensed as incurred.

The components of lease expense were as follows:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2019		2019
Operating lease cost	$	9,630	$	18,505
Short-term lease cost	279		513
Variable lease cost	898		1,690
Finance lease cost:
Amortization	63		119
Interest on lease liabilities	4		7
Total lease cost	$	10,874	$	20,834

Supplemental cash flow information related to leases was as follows:

	Six Months Ended
	June 30,
	2019
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases	$	18,440
Operating cash flows from finance leases	7
Financing cash flows from finance leases	113
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	13,061
Finance leases	123

Supplemental balance sheet information related to leases was as follows:

	June 30,
	2019
Operating leases:
Operating lease right-of-use assets	$	135,134
Current operating lease liability	$	20,339
Non-current operating lease liability	139,729
Total operating lease liabilities	$	160,068
Finance leases:
Investments in real estate, net	$	133		(1)
Property, plant and equipment, at cost	$	309
Accumulated amortization	(166		)
Property and equipment, net	$	143
Current portion of notes payable and long-term debt	$	168
Notes payable, long-term debt and other obligations, less current portion	108
Total finance lease liabilities	$	276
Weighted average remaining lease term:
Operating leases	8.62
Finance leases	2.60
Weighted average discount rate:
Operating leases	11.05		%
Finance leases	8.46		%

⁽¹⁾   Included in Investments in real estate, net on the condensed consolidated balance sheet are financing lease equipment, at cost of $729 and accumulated amortization of $596 as of June 30, 2019.

As of June 30, 2019, maturities of lease liabilities were as follows:

	Operating Leases			Finance  Leases
Year Ending December 31:
Remainder of 2019	$	19,389		$	118
2020	33,597			86
2021	30,914			33
2022	28,012			31
2023	26,460			31
2024	21,265			8
Thereafter	100,120			—
Total lease payments	259,757			307
Less imputed interest	(99,689		)	(31		)
Total	$	160,068		$	276

Under ASC 840, Leases, future minimum lease payments under noncancelable operating leases as of December 31, 2018 were as follows:

	Lease Commitments		Sublease Rentals		Net
Year Ending December 31:
2019	$	35,973	$	69	$	35,904
2020	29,917		—		29,917
2021	27,592		—		27,592
2022	25,185		—		25,185
2023	23,589		—		23,589
Thereafter	104,126		—		104,126
Total	$	246,382	$	69	$	246,313

The Company has one lease for office space wherein the lessor is an affiliate of a significant shareholder of the Company. This lease represents $1,446 of the ROU asset balances and $1,505 of lease liability balances as of June 30, 2019. The rent expense for this lease was approximated $114 and $229 for the three and six months ended June 30, 2019.

As of June 30, 2019, the Company had additional operating leases for office space and equipment, that have not yet commenced, of $1,102 in undiscounted lease payments. The operating leases will commence in the third and fourth quarter of 2019 with lease terms ranging between 2 to 10 years.

Leases

LEASES

Leasing Accounting Pronouncement Adoption

On January 1, 2019, the Company adopted ASU No. 2016-02 - Leases (Topic 842) applying the modified retrospective method and the option presented under ASU 2018-11 to transition only active leases as of January 1, 2019 with a cumulative effect adjustment as of that date. All comparative periods prior to January 1, 2019 retain the financial reporting and disclosure requirements of ASC 840. The Company elected the package of practical expedients permitted under the transition guidance within the new standard. The package of three expedients includes: 1) the ability to carry forward the historical lease classification, 2) the elimination of the requirement to reassess whether existing or expired agreements contain leases, and 3) the elimination of the requirement to reassess initial direct costs. The Company also elected the practical expedient related to short-term leases without purchase options reasonably certain to exercise, allowing it to exclude leases with terms of less than twelve (12) months from capitalization for all asset classes. The Company did not elect the hindsight practical expedient when determining the lease terms. The adoption of the new standard resulted in the recording of right-of-use (“ROU”) assets and lease liabilities of $128,890 and $153,676, respectively, as of January 1, 2019. The difference between the ROU assets and lease liabilities reflects the reclassification of historical deferred rent balances of approximately $22,881, and tenant improvement receivable of $355 as adjustments to the ROU asset balances, and an adjustment that increased accumulated deficit by $1,550 to recognize the impairment in ROU assets for asset groups previously identified as being impaired. The standard did not materially impact the Company’s consolidated net earnings and had no impact on cash flows. The new standard had no material impact on liquidity and had no impact on the Company’s debt-covenant compliance under its current debt agreements.

Leasing Policies

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease ROU assets and lease liabilities on the Company’s balance sheets. Finance leases are included in investments in real estate, net, property, plant and equipment and current and long-term portions of notes payable and long-term debt on the Company’s balance sheets.

ROU assets represent the Company’s right to use an underlying asset for the duration of the lease term. Lease liabilities represent the Company’s obligation to make lease payments as determined by the lease agreement. Lease liabilities are recorded at commencement for the net present value of future lease payments over the lease term. The discount rate used is generally the Company’s estimated incremental borrowing rate unless the lessor’s implicit rate is readily determinable. Discount rates are calculated periodically to estimate the rate the Company would pay to borrow the funds necessary to obtain an asset of similar value, over a similar term, with a similar security. ROU assets are recorded and recognized at commencement for the lease liability amount, initial direct costs incurred and is reduced for lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term. Finance lease cost is recognized on a straight-line basis over the shorter of the useful life of the asset and the lease term.

The Company has lease agreements with lease and non-lease components; the Company has elected the accounting policy to combine lease and non-lease components for all underlying asset classes.

Leases

The Company has operating and finance leases for corporate and sales offices, and certain vehicles and equipment. The leases have remaining lease terms of one year to 15 years, some of which include options to extend for up to 5 years, and some of which include options to terminate the leases within one year. However, the Company in general is not reasonably certain to exercise options to renew or terminate, and therefore renewal and termination options are not considered in the lease term or the ROU asset and lease liability balances. The Company’s lease population includes purchase options on equipment leases that are included in the lease payments when reasonably certain to be exercised. The Company’s lease population does not include any residual value guarantees. The Company’s lease population does not contain any material restrictive covenants.

The Company has leases with variable payments, most commonly in the form of Common Area Maintenance (“CAM”) and tax charges which are based on actual costs incurred. These variable payments were excluded from the ROU asset and lease liability balances since they are not fixed or in-substance fixed payments. Variable payments are expensed as incurred.

The components of lease expense were as follows:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2019		2019
Operating lease cost	$	9,630	$	18,505
Short-term lease cost	279		513
Variable lease cost	898		1,690
Finance lease cost:
Amortization	63		119
Interest on lease liabilities	4		7
Total lease cost	$	10,874	$	20,834

Supplemental cash flow information related to leases was as follows:

	Six Months Ended
	June 30,
	2019
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases	$	18,440
Operating cash flows from finance leases	7
Financing cash flows from finance leases	113
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	13,061
Finance leases	123

Supplemental balance sheet information related to leases was as follows:

	June 30,
	2019
Operating leases:
Operating lease right-of-use assets	$	135,134
Current operating lease liability	$	20,339
Non-current operating lease liability	139,729
Total operating lease liabilities	$	160,068
Finance leases:
Investments in real estate, net	$	133		(1)
Property, plant and equipment, at cost	$	309
Accumulated amortization	(166		)
Property and equipment, net	$	143
Current portion of notes payable and long-term debt	$	168
Notes payable, long-term debt and other obligations, less current portion	108
Total finance lease liabilities	$	276
Weighted average remaining lease term:
Operating leases	8.62
Finance leases	2.60
Weighted average discount rate:
Operating leases	11.05		%
Finance leases	8.46		%

⁽¹⁾   Included in Investments in real estate, net on the condensed consolidated balance sheet are financing lease equipment, at cost of $729 and accumulated amortization of $596 as of June 30, 2019.

As of June 30, 2019, maturities of lease liabilities were as follows:

	Operating Leases			Finance  Leases
Year Ending December 31:
Remainder of 2019	$	19,389		$	118
2020	33,597			86
2021	30,914			33
2022	28,012			31
2023	26,460			31
2024	21,265			8
Thereafter	100,120			—
Total lease payments	259,757			307
Less imputed interest	(99,689		)	(31		)
Total	$	160,068		$	276

Under ASC 840, Leases, future minimum lease payments under noncancelable operating leases as of December 31, 2018 were as follows:

	Lease Commitments		Sublease Rentals		Net
Year Ending December 31:
2019	$	35,973	$	69	$	35,904
2020	29,917		—		29,917
2021	27,592		—		27,592
2022	25,185		—		25,185
2023	23,589		—		23,589
Thereafter	104,126		—		104,126
Total	$	246,382	$	69	$	246,313

The Company has one lease for office space wherein the lessor is an affiliate of a significant shareholder of the Company. This lease represents $1,446 of the ROU asset balances and $1,505 of lease liability balances as of June 30, 2019. The rent expense for this lease was approximated $114 and $229 for the three and six months ended June 30, 2019.

As of June 30, 2019, the Company had additional operating leases for office space and equipment, that have not yet commenced, of $1,102 in undiscounted lease payments. The operating leases will commence in the third and fourth quarter of 2019 with lease terms ranging between 2 to 10 years.