Leases

12 Months Ended

Feb. 01, 2020

Our leased property consists of our retail stores, distribution centers in California, store security, and other office equipment.

In November 2017, we entered into a synthetic lease arrangement (the “Synthetic Lease”) for a new distribution center in California. The term of the Synthetic Lease commenced in the second quarter of 2019 and will expire 5 years after commencement. Under the prior accounting standard, the Synthetic Lease was accounted for as a capital lease due to certain construction period considerations, and therefore, was initially reflected in both our balance sheet and our future minimum lease obligations disclosure. As the Synthetic Lease commenced in the second quarter of 2019, we assessed its lease classification and determined it was an operating lease under ASC 842. Therefore, the Synthetic Lease is included in our operating lease right-of-use assets and operating lease liabilities in the below table as of February 1, 2020. The annual lease payments are approximately $7 million for the duration of the term. Additionally, the Synthetic Lease includes a residual value guarantee, which is not probable to be paid.

Leases were recorded in our consolidated balance sheets as follows:



Leases (In thousands)	Balance Sheet Location	February 1, 2020
Assets		(In thousands)
Operating	Operating lease right-of-use assets	$	1,202,252
Finance	Property and equipment - net	7,436
Total right-of-use assets		$	1,209,688
Liabilities
Current
Operating	Current operating lease liabilities	$	212,144
Finance	Accrued operating expenses	3,650
Noncurrent
Operating	Noncurrent operating lease liabilities	1,035,377
Finance	Other liabilities	4,482
Total lease liabilities		$	1,255,653

The components of lease costs were as follows:



Lease cost (In thousands)	Statements of Operations and Comprehensive Income Location	2019
Operating lease cost	Selling and administrative expenses	$	295,810
Finance lease cost
Amortization of leased assets	Depreciation	4,373
Interest on lease liabilities	Interest expense	948
Short-term lease cost	Selling and administrative expenses	5,671
Variable lease cost	Selling and administrative expenses	81,666
Total lease cost		$	388,468

In 2019, our operating lease cost above included $3.6 million of right-of-use asset impairment charges related to store closures prior to lease termination date.

Maturity of our lease liabilities at February 1, 2020, was as follows:



Fiscal Year (In thousands)	Operating Leases			Finance Leases
2020	$	259,731		$	4,664
2021	261,390			3,406
2022	224,919			585
2023	191,012			182
2024	148,038			52
Thereafter	343,237			20
Total lease payments	$	1,428,327		$	8,909
Less amount to discount to present value	$	(180,806	)	$	(777	)
Present value of lease liabilities	$	1,247,521		$	8,132

Lease term and discount rate, for our operating leases, at February 1, 2020, were as follows:



	February 1, 2020
Weighted average remaining lease term (years)	6.4
Weighted average discount rate	4.1	%

Our weighted average discount rate represents our estimated incremental borrowing rate, assuming a secured borrowing, based on the remaining lease term at the time of adoption of the standard, lease commencement, or the period in which the lease term expectation was modified. Our finance leases, and the associated remaining lease term and discount rate, are insignificant.

Disclosures Related to Periods Prior to Adoption of ASC 842, Leases

Under ASC 840, Leases, future minimum rental commitments for operating leases, excluding closed store leases, real estate taxes, CAM, and property insurance, and scheduled payments for all capital leases at February 2, 2019, were as follows:



Fiscal Year (In thousands)	Operating Leases		Capital Leases
2019	$	279,844	$	9,050
2020	244,978		10,815
2021	204,362		9,725
2022	159,479		6,992
2023	120,023		6,512
Thereafter	310,474		127,864
Total lease payments	$	1,319,160	$	170,958
Less amount to discount to present value			$	(14,758	)
Present value of lease liabilities			$	156,200

Under ASC 840, Leases, total rent expense, including real estate taxes, CAM, and property insurance for operating leases consisted of the following:



(In thousands)	2018		2017
Minimum rents	$	346,067	$	330,229
Contingent rents	168		469
Total rent expense	$	346,235	$	330,698