Leases

The Company has operating leases for office space and campus facilities. Some leases include options to terminate or extend for one or more years. These options are included in the lease term when it is reasonably certain that the option will be exercised. The APEI Segment leases corporate and administrative office space in Maryland and Virginia under operating leases that expire through June 2023. The HCN Segment leases administrative office space and five campuses in Ohio under operating leases that expire through June 2029.

Operating lease assets are ROU assets, which represent the right to use an underlying asset for the lease term. Operating lease liabilities represent the obligation to make lease payments arising from the lease. Operating leases are included in the Operating lease assets, net, and Operating lease liabilities, current and long-term on the Consolidated Balance Sheet at September 30, 2019. These assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. When the lease does not provide an implicit interest rate, the Company uses an incremental borrowing rate based on information available at lease commencement to determine the present value of the lease payments. The ROU asset includes all lease payments made and excludes lease incentives.

Lease expense for operating leases is recognized on a straight-line basis over the lease term. There are no variable lease payments. Lease expense for the three and nine month periods ended September 30, 2019 was $0.6 million and $1.9 million, respectively. These costs are primarily related to long-term operating leases, but also include amounts for short-term leases with terms greater than 30 days that are not material.

The following tables present information about the amount and timing of cash flows arising from the Company’s operating leases as of September 30, 2019 (dollars in thousands):



Maturity of Lease Liabilities	Lease Payments
2019 (remaining)	$	616
2020	2,517
2021	2,537
2022	2,481
2023	1,523
2024	566
2025 and beyond	2,239
Total future minimum lease payments	12,479
Less imputed interest	(1,810		)
Present value of operating lease liabilities	$	10,669



Balance Sheet Classification
Operating lease liabilities, current	$	2,001
Operating lease liabilities, long-term	8,668
Total operating lease liabilities	$	10,669



Other Information
Weighted average remaining lease term (in years)	5.8
Weighted average discount rate	5.1	%

In May 2019, HCN entered into a lease agreement for a new campus location in Indianapolis, Indiana. The lease term begins in October 2019 for a 62 month period expiring in November 2024, with an option for an additional five year renewal. The total value of the minimum rental payments for the initial term of the lease is $1.8 million.

Cash Flows

An initial ROU asset of $11.8 million was recognized as a non-cash asset addition with the adoption of the standard. There were no additional ROU assets recognized as non-cash asset additions during the three and nine month periods ended September 30, 2019. Cash paid for amounts included in the present value of operating lease liabilities at adoption during the three and nine month periods ended September 30, 2019 was $0.6 million and $1.8 million, respectively, and is included in operating cash flows.