Leases

9 Months Ended

Sep. 30, 2021

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 Company leases corporate office space in Maryland under an operating lease that expires in May 2022, and until May 2021, leased administrative office space in Virginia. The RU Segment leases administrative office space in suburban Chicago, Illinois, and Minneapolis, Minnesota, and leases 23 campuses located in six states under operating leases that expire through October 2033. The HCN Segment leases administrative office space in suburban Columbus, Ohio, and leases six campuses located in Ohio and one campus in Indianapolis, Indiana, under operating leases that expire through June 2029.

In November 2021, HCN entered into a lease agreement for a new campus location in suburban Detroit, Michigan for a lease term beginning in April 2022 and expiring in March 2032. The total value of the minimum rental payments for the initial term of this lease is $4.9 million.

Operating lease assets are right of use, or ROU, assets, which represent the right to use the underlying assets 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 Sheets. These lease assets and 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 estimates an incremental borrowing rate based on information available at lease commencement to determine the present value of the lease payments. The ROU assets include all remaining lease payments and exclude 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, 2021 was $1.8 million and $3.4 million, respectively, compared to $0.7 million and $2.2 million for the three and nine month periods ended September 30, 2020, 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. Cash paid for amounts included in the present value of operating lease liabilities during the three and nine month periods ended September 30, 2021 was $1.9 million and $3.4 million, respectively, and is included in operating cash flows. Cash paid for amounts included in the present value of operating lease liabilities during the three and nine month periods ended September 30, 2020 was $0.7 million and $2.2 million, respectively, and is included in operating cash flows.

The following tables present information about the amount and timing of cash flows arising from the Company’s operating leases as of September 30, 2021 (dollars in thousands):


Maturity of Lease Liabilities (Unaudited)	Lease Payments
2021 (remaining)	$	4,053
2022	16,036
2023	13,087
2024	11,377
2025	10,150
2026	9,916
2027 and beyond	33,572
Total future minimum lease payments	98,191
Less imputed interest	(10,895)
Present value of operating lease liabilities	$	87,296


Balance Sheet Classification (Unaudited)
Operating lease liabilities, current	$	13,876
Operating lease liabilities, long-term	73,420
Total operating lease liabilities	$	87,296


Other Information (Unaudited)
Weighted average remaining lease term (in years)	7.76
Weighted average discount rate	3.1	%