Lease Commitments

12 Months Ended

Dec. 31, 2019

Leases

Refer to Note 2 for information on the impact of the adoption of the New Leases Standard.

As Lessee

The Company, as lessee, has entered into 49 ground/facility and office space lease agreements, which qualify as operating leases under the New Leases Standard. These leases include leases entered into under the ACE program with university systems and Walt Disney World^® Resort, leases with local and regional land owners for owned off-campus properties, leases for corporate office space, and leases under the on-campus participating properties (“OCPPs”) structure. Leases entered into under the ACE program are used for the purpose of financing, constructing, and managing student housing properties. These leases are transferable and financeable, and the lessor has title to the land and in some cases any improvements placed thereon. Leases entered into under the OCPP structure are used for the purpose of developing, constructing and operating student housing facilities on university campuses. Under the terms of these leases, title to the land and constructed facilities are held by the Lessor and such Lessor receives a de minimis base rent paid at inception and 50% of defined net cash flows on an annual basis through the term of the lease. Under ground/facility leases, the lessors receive annual minimum (base) rent, variable rent based upon the operating performance of the property, or a combination thereof. The leases have initial terms (excluding extension options) ranging from seven years to 102 years. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company records base rent expense under the straight-line method over the term of the lease, and variable rent expense is recorded when the achievement of the target is considered probable. Straight-line rent is capitalized during the construction period and expensed upon the commencement of operations. In the accompanying consolidated statements of comprehensive income, rent expense for ACE properties and OCPPs is included in ground/facility lease expense, and rent expense for owned off-campus properties is included in owned properties operating expenses. Total straight-line rent expense, variable rent expense, and capitalized rent cost, were as follows:



	Year Ended December 31,
Description	2019		2018		2017
Straight-line rent expense	$	10,009	$	8,798	$	5,544
Variable rent expense	8,996		7,234		7,566
Capitalized rent cost	12,889		2,296		2,003

For purposes of calculating the ROU Asset and lease liability for such leases, extension options are not included in the lease term unless it is reasonably certain that the Company will exercise the option, or the lessor has the sole ability to exercise the option. As most of the Company’s leases do not contain an implicit rate, the Company uses its incremental borrowing rate to determine the present value of the lease payments, which is the interest rate that the Company estimates it would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments. In determining this rate, we analyze company-specific factors, such as credit risk, lease-specific factors such as lease term, lease payments, and collateral, as well as overall economic conditions. The weighted average incremental borrowing rate was 5.35% as of December 31, 2019. The weighted average remaining lease term of leases with a lease liability as of December 31, 2019 is 62.4 years (excluding extension options).

There were no finance lease obligations outstanding as of December 31, 2019. Future minimum commitments over the life of all leases, which exclude variable rent payments, are as follows:



	December 31, 2019			December 31, 2018
2020	$	11,814		$	9,463
2021	16,749			12,092
2022	23,664			16,653
2023	28,776			18,999
2024	29,371			18,903
Thereafter	1,661,648			1,042,842
Total minimum lease payments	1,772,022			$	1,118,952
Less imputed interest	(1,298,952		)
Total lease liabilities	$	473,070

As Lessor

The Company’s primary business involves leasing properties to students under agreements that are classified as operating leases, and which have terms of 12 months or less. These student leases do not provide for variable rent payments. The Company is also a lessor under commercial leases at certain owned properties, some of which provide for variable lease payments based upon tenant performance such as a percentage of sales. The Company recognizes the base lease payments provided for under the leases on a straight-line basis over the lease term, and variable payments are recognized in the period in which the changes in facts and circumstances on which the variable payments are based occur. Lease income under both student and commercial leases is included in owned property revenues in the accompanying consolidated statements of comprehensive income. Lease income under student leases totaled $852.0 million, $794.7 million and $711.3 million for the years ended December 31, 2019, 2018, and 2017, respectively. Lease income under commercial leases totaled $13.2 million and $13.1 million, and $12.8 million for the years ended December 31, 2019, 2018, and 2017, respectively. Refer to Note 7 for additional information on our owned real estate assets, which are the underlying assets under our operating leases.