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Leases
 3 Months Ended
Mar. 31, 2023
Leases [Abstract]  
Leases
Note 7. Leases
Operating Leases
Our operating leases primarily relate to preferred berthing arrangements, real estate and shipboard equipment, and are included within Operating lease right-of-use assets, and Long-term operating lease liabilities with the current portion of the liability included within Current portion of operating lease liabilities in our consolidated balance sheets as of March 31, 2023 and December 31, 2022. Leases with an initial term of 12 months or less are not recorded on our consolidated balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term. Our operating leases include Silver Explorer, operated by Silversea Cruises. The operating lease for Silver Explorer will expire in August 2023.
For some of our real estate leases and berthing agreements, we do have the option to extend our current lease term. For those lease agreements with renewal options, the renewal periods for real estate leases range from one to 10 years and the renewal periods for berthing agreements range from one to 20 years. Generally, we do not include renewal options as a component of our present value calculation for berthing agreements. However, for certain real estate leases, we include them.
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate in determining the present value of lease payments. We estimate our incremental borrowing rates based on Term SOFR and U.S. Treasury note rates corresponding to lease terms increased by the Company’s credit risk spread and reduced by the estimated impact of collateral. In addition, we have lease agreements with lease and non-lease components, which are generally accounted for separately. However, for berthing agreements, we account for the lease and non-lease components as a single lease component.
Finance Leases
Our finance leases primarily relate to buildings and surrounding land located at our Miami headquarters and our lease for the Silver Dawn ship. Finance leases are included within Property and Equipment, net and Long-term debt with the current portion of the liability included within Current portion of long-term debt in our consolidated balance sheets as of March 31, 2023 and December 31, 2022. During the quarter ended March 31, 2023 we executed the bargain purchase option for the Silver Whisper.
The Company's master lease agreement (“Master Lease”) with Miami-Dade County related to the buildings and surrounding land located at our Miami headquarters is classified as a finance lease in accordance with ASC 842, Leases. The Master Lease includes two five-year options to extend the lease which we are reasonably certain to exercise. The total aggregate amount of the finance lease liabilities recorded for this Master Lease was $56.0 million and $55.5 million as of March 31, 2023 and December 31, 2022, respectively.
Silversea Cruises operates Silver Dawn under a sale-leaseback agreement with a bargain purchase option at the end of the 15-year lease term. Due to the bargain purchase option at the end of the lease term in 2036, whereby Silversea Cruises is reasonably certain of obtaining ownership of the ship, Silver Dawn is accounted for as a finance lease. The lease includes other purchase options beginning in year three, none of which are reasonably certain of being exercised at this time. The total aggregate amount of finance lease liabilities recorded for this ship was $260.1 million and $264.8 million as of March 31, 2023 and December 31, 2022, respectively. The lease payments on the Silver Dawn are subject to adjustments based on the LIBOR rate.
The components of lease expense were as follows (in thousands):
Consolidated Statement of Comprehensive Loss ClassificationQuarter Ended March 31, 2023Quarter Ended March 31, 2022
Lease costs:
Operating lease costsCommission, transportation and other$55,101 $22,729 
Operating lease costsOther operating expenses5,545 5,471 
Operating lease costsMarketing, selling and administrative expenses5,442 4,776 
Financial lease costs:
Amortization of right-of-use-assetsDepreciation and amortization expenses5,791 6,093 
Interest on lease liabilitiesInterest expense, net of interest capitalized7,502 4,600 
Total lease costs$79,381 $43,669 
In addition, certain of our berthing agreements include variable lease costs based on the number of passengers berthed. During the quarters ended March 31, 2023, and 2022 we had $37.7 million and $7.5 million of variable lease costs recorded within Commission, transportation and other in our consolidated statement of comprehensive loss, respectively.
The weighted average of the remaining lease terms and weighted average discount rates are as follows:
As of March 31, 2023As of December 31, 2022
Weighted average of the remaining lease term in years
Operating leases17.8117.69
Finance leases19.6819.26
Weighted average discount rate
Operating leases7.24 %6.92 %
Finance leases6.44 %6.43 %
Supplemental cash flow information related to leases is as follows (in thousands):
Quarter Ended March 31, 2023Quarter Ended March 31, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$36,421 $28,193 
Operating cash flows from finance leases$7,502 $4,600 
Financing cash flows from finance leases$13,988 $17,034 
As of March 31, 2023, maturities related to lease liabilities were as follows (in thousands):
YearOperating LeasesFinance Leases
Remainder of 2023$89,291 $33,923 
2024105,441 44,465 
202599,815 43,974 
202690,555 38,412 
202771,207 37,358 
Thereafter789,278 706,482 
Total lease payments1,245,587 904,614 
Less: Interest(657,672)(567,722)
Present value of lease liabilities$587,915 $336,892 
Leases
Note 7. Leases
Operating Leases
Our operating leases primarily relate to preferred berthing arrangements, real estate and shipboard equipment, and are included within Operating lease right-of-use assets, and Long-term operating lease liabilities with the current portion of the liability included within Current portion of operating lease liabilities in our consolidated balance sheets as of March 31, 2023 and December 31, 2022. Leases with an initial term of 12 months or less are not recorded on our consolidated balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term. Our operating leases include Silver Explorer, operated by Silversea Cruises. The operating lease for Silver Explorer will expire in August 2023.
For some of our real estate leases and berthing agreements, we do have the option to extend our current lease term. For those lease agreements with renewal options, the renewal periods for real estate leases range from one to 10 years and the renewal periods for berthing agreements range from one to 20 years. Generally, we do not include renewal options as a component of our present value calculation for berthing agreements. However, for certain real estate leases, we include them.
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate in determining the present value of lease payments. We estimate our incremental borrowing rates based on Term SOFR and U.S. Treasury note rates corresponding to lease terms increased by the Company’s credit risk spread and reduced by the estimated impact of collateral. In addition, we have lease agreements with lease and non-lease components, which are generally accounted for separately. However, for berthing agreements, we account for the lease and non-lease components as a single lease component.
Finance Leases
Our finance leases primarily relate to buildings and surrounding land located at our Miami headquarters and our lease for the Silver Dawn ship. Finance leases are included within Property and Equipment, net and Long-term debt with the current portion of the liability included within Current portion of long-term debt in our consolidated balance sheets as of March 31, 2023 and December 31, 2022. During the quarter ended March 31, 2023 we executed the bargain purchase option for the Silver Whisper.
The Company's master lease agreement (“Master Lease”) with Miami-Dade County related to the buildings and surrounding land located at our Miami headquarters is classified as a finance lease in accordance with ASC 842, Leases. The Master Lease includes two five-year options to extend the lease which we are reasonably certain to exercise. The total aggregate amount of the finance lease liabilities recorded for this Master Lease was $56.0 million and $55.5 million as of March 31, 2023 and December 31, 2022, respectively.
Silversea Cruises operates Silver Dawn under a sale-leaseback agreement with a bargain purchase option at the end of the 15-year lease term. Due to the bargain purchase option at the end of the lease term in 2036, whereby Silversea Cruises is reasonably certain of obtaining ownership of the ship, Silver Dawn is accounted for as a finance lease. The lease includes other purchase options beginning in year three, none of which are reasonably certain of being exercised at this time. The total aggregate amount of finance lease liabilities recorded for this ship was $260.1 million and $264.8 million as of March 31, 2023 and December 31, 2022, respectively. The lease payments on the Silver Dawn are subject to adjustments based on the LIBOR rate.
The components of lease expense were as follows (in thousands):
Consolidated Statement of Comprehensive Loss ClassificationQuarter Ended March 31, 2023Quarter Ended March 31, 2022
Lease costs:
Operating lease costsCommission, transportation and other$55,101 $22,729 
Operating lease costsOther operating expenses5,545 5,471 
Operating lease costsMarketing, selling and administrative expenses5,442 4,776 
Financial lease costs:
Amortization of right-of-use-assetsDepreciation and amortization expenses5,791 6,093 
Interest on lease liabilitiesInterest expense, net of interest capitalized7,502 4,600 
Total lease costs$79,381 $43,669 
In addition, certain of our berthing agreements include variable lease costs based on the number of passengers berthed. During the quarters ended March 31, 2023, and 2022 we had $37.7 million and $7.5 million of variable lease costs recorded within Commission, transportation and other in our consolidated statement of comprehensive loss, respectively.
The weighted average of the remaining lease terms and weighted average discount rates are as follows:
As of March 31, 2023As of December 31, 2022
Weighted average of the remaining lease term in years
Operating leases17.8117.69
Finance leases19.6819.26
Weighted average discount rate
Operating leases7.24 %6.92 %
Finance leases6.44 %6.43 %
Supplemental cash flow information related to leases is as follows (in thousands):
Quarter Ended March 31, 2023Quarter Ended March 31, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$36,421 $28,193 
Operating cash flows from finance leases$7,502 $4,600 
Financing cash flows from finance leases$13,988 $17,034 
As of March 31, 2023, maturities related to lease liabilities were as follows (in thousands):
YearOperating LeasesFinance Leases
Remainder of 2023$89,291 $33,923 
2024105,441 44,465 
202599,815 43,974 
202690,555 38,412 
202771,207 37,358 
Thereafter789,278 706,482 
Total lease payments1,245,587 904,614 
Less: Interest(657,672)(567,722)
Present value of lease liabilities$587,915 $336,892