Leases

6 Months Ended

Jun. 30, 2020

Leases

Leases

9. Leases

The Company has both finance and operating leases for ground, building, office and air leases, maturing in dates ranging from 2028 through 2097, including expected renewal options. Including all renewal options available to the Company, the lease maturity date extends to 2147.

Leases were included on the Company’s consolidated balance sheet as follows (in thousands):

	June 30,			December 31,
	2020			2019
	(unaudited)
Finance Lease:
Right-of-use asset, net (buildings and improvements)	$	58,799		$	58,799
Accumulated depreciation		(11,882)			(11,147)
Right-of-use asset, net	$	46,917		$	47,652
Accounts payable and accrued expenses	$	1		$	1
Lease obligation, less current portion		15,570			15,570
Total lease obligation	$	15,571		$	15,571
Remaining lease term		78 years
Discount rate		9.0	%
Operating Leases:
Right-of-use assets, net (1)	$	40,351		$	60,629
Accounts payable and accrued expenses	$	4,891		$	4,743
Lease obligations, less current portion		47,206			49,691
Total lease obligations	$	52,097		$	54,434
Weighted average remaining lease term		25 years
Weighted average discount rate		5.4	%

(1) During the first quarter of 2020, the Company wrote down its operating lease right-of-use assets, net and recorded an impairment loss of $18.5 million on the Hilton Times Square (see Note 5).

The components of lease expense were as follows (unaudited and in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Finance lease cost:
Amortization of right-of-use asset	$	367	$	368	$	735	$	736
Interest on lease obligations		351		645		702		1,289
Total finance lease cost	$	718	$	1,013	$	1,437	$	2,025
Operating lease cost (1) (2)	$	1,652	$	3,229	$	4,094	$	6,378

(1) Several of the Company’s hotels pay percentage rent, which is calculated on operating revenues above certain thresholds. During the second quarter of 2020, the Company reversed $0.7 million in percentage rent as payment is no longer probable due to a decline in revenue at the Hilton San Diego Bayfront caused by the hotel’s COVID-19-related temporary suspension of operations. As a result, the Company recorded no percentage rent related to its operating leases for the six months ended June 30, 2020. During the three and six months ended June 30, 2019, the Company recorded percentage rent related to its operating leases of $1.5 million and $2.9 million, respectively.

(2) Under the terms of the operating lease at the Hilton Times Square, the variable rent amount was adjusted in May 2020 based on the fair market value of the land. While the Company is negotiating with the landlord to agree on the fair market value of the land, the Company is recording operating lease cost in accordance with the lease based on 90.0% of the landlord’s estimate of fair value (see Note 12).

Supplemental cash flow information related to leases was as follows (unaudited and in thousands):

	Six Months Ended June 30,
	2020		2019
Operating cash flows used for operating leases	$	4,054	$	3,499
Changes in operating lease right-of-use assets	$	1,892	$	1,696
Changes in operating lease obligations		(2,485)		(1,966)
Changes in operating lease right-of-use assets and lease obligations, net	$	(593)	$	(270)
Operating right-of-use assets obtained in exchange for operating lease obligations	$	—	$	45,677