Leases

9 Months Ended

Sep. 30, 2023

Leases

Leases

8. Leases

We lease certain facilities, vehicles and equipment primarily under noncancelable operating leases. The most significant portion of these noncancelable operating leases is for the facilities occupied by our corporate office and our operating locations. Leases with an initial term of 12 months or less are not recorded in the Consolidated Balance Sheet. We do not separate lease components from their associated non-lease components pursuant to lease accounting guidance. We have certain leases with variable payments based on an index as well as some short-term leases on equipment and facilities. Variable lease expense and short-term lease expense aggregated to $17.0 million and $6.3 million for the three months ended September 30, 2023 and 2022, respectively. Variable lease expense and short-term lease expense aggregated to $38.8 million and $14.4 million in the first nine months of 2023 and 2022, respectively. These expenses were primarily related to short-term equipment rentals. Lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The weighted average discount rate for our operating leases as of September 30, 2023 and December 31, 2022 was 5.8% and 4.3%, respectively. We recognize operating lease expense, including escalating lease payments and lease incentives, on a straight-line basis over the lease term. Operating lease expense for the three months ended September 30, 2023 and 2022 was $25.7 million and $13.1

million, respectively. Operating lease expense for the nine months ended September 30, 2023 and 2022 was $61.7 million and $34.3 million, respectively.

The lease terms generally range from three to ten years. Some leases include one or more options to renew, which may be exercised to extend the lease term. We include the exercise of lease renewal options in the lease term when it is reasonably certain that we will exercise the option and such exercise is at our sole discretion. In the third quarter of 2023, we commenced two large real estate leases to support our expected growth in off-site construction, with lease terms longer than our typical terms. The weighted average remaining lease term for our operating leases was 11.0 years at September 30, 2023 and 8.1 years at December 31, 2022.

A majority of the Company’s real property leases are with individuals or entities with whom we have no other business relationship. However, in certain instances the Company enters into real property leases with current or former employees. Rent paid to related parties for the three months ended September 30, 2023 and 2022 was approximately $1.9 million and $1.7 million, respectively. Rent paid to related parties for the nine months ended September 30, 2023 and 2022 was approximately $5.6 million and $5.2 million, respectively.

If we decide to cancel or terminate a lease before the end of its term, we would typically owe the lessor the remaining lease payments under the term of the lease. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. On rare occasions, we rent or sublease certain real estate assets that we no longer use to third parties.

The following table summarizes the operating lease assets and liabilities included in the Consolidated Balance Sheet as follows (in thousands):

	September 30, 2023		December 31, 2022
Operating lease right-of-use assets	$	209,138	$	130,666
Operating lease liabilities:
Other current liabilities	$	23,346	$	21,151
Long-term operating lease liabilities		191,451		111,744
Total operating lease liabilities	$	214,797	$	132,895

The maturities of operating lease liabilities are as follows (in thousands):

Year ending December 31—
2023 (excluding the nine months ended September 30, 2023)	$	8,058
2024		34,816
2025		33,412
2026		29,808
2027		25,817
Thereafter		169,579
Total Lease Payments		301,490
Less—Present Value Discount		(86,693)
Present Value of Operating Lease Liabilities	$	214,797

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Cash paid for amounts included in the measurement of operating lease liabilities	$	7,293	$	6,777	$	21,362	$	19,793
Operating lease right-of-use assets obtained in exchange for lease liabilities	$	82,352	$	6,191	$	98,102	$	24,560