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Note 4 - Leases, Right-of-Use Assets and Related Liabilities

9 Months Ended

Sep. 30, 2021

4. Leases, Right-of-Use Assets and Related Liabilities

The Company is party to an operating lease contract for the Company’s office and research facility in Englewood, Colorado, that expires in January 2029. The lease does not contain an option to extend the lease that is reasonably certain to be exercised. All other operating leases qualified for the short-term scope exemption elected by the Company. The Company recognizes rent expense on its operating lease on a straight-line basis. The Company has elected the practical expedient to not separate lease components from non-lease components for these asset classes. As of September 30, 2021, right-of-use assets under operating leases totaling $1.6 million are included in "Operating right-of use assets," and related lease liabilities totaling $1.7 million are included in "Operating lease liabilities (long-term)” in the Consolidated Balance Sheets.

The Company also has four finance leases for land under arrangements related to Gevo RNG. Under these contracts, the Company leases land from dairy farmers on which it is building three anaerobic digesters, related equipment and pipelines to condition raw biogas from cow manure provided by the farmers. The partially conditioned biogas will be transported from the three digester sites to a central gas upgrade system located at the fourth site that will upgrade the biogas to pipeline quality natural gas for sale. These leases expire at various dates between 2031 and 2050. Certain leases provide the Company with the right to terminate the lease prior to the stated lease expiration date; however, the Company is reasonably certain not to exercise such termination right and thus periods beyond this termination right have been recognized as part of the Company’s right-of-use assets and lease liabilities. In addition, some of these leases include renewal periods that have been deemed to be reasonably certain to be exercised and as such have been recognized as part of the Company’s right-of-use assets and lease liabilities. The Company has elected the practical expedient to not separate lease components from non-lease components for this dairy lease asset class and therefore, all amounts paid to the lessor under these arrangements for cow manure and nonlease services are classified as lease payments and included in the calculation of the right-of-use assets and lease liabilities. This results in significantly higher right-of-use assets and lease liabilities than if the Company did not elect this practical expedient. As of September 30, 2021, right-of-use assets under finance leases totaling $27.7 million are included in "Finance right-of-use assets," and related lease liabilities totaling $22.3 million are included in the Consolidated Balance Sheets as follows: $2.7 million of lease liabilities included in "Finance lease liabilities (current) and $19.6 million included in "Finance lease liabilities (long-term)".

The Company leased its grain bins in Luverne, Minnesota in October 2020 through a short-term operating lease agreement which expired in July 2021. Rental income for the three and nine months ended September 30, 2021 totaled $0 and $0.2 million, respectively.

The following table presents the (a) costs by lease category and (b) other quantitative information relating to the Company’s leases (dollars in thousands):

	Three Months Ended September 30,
	2021		2020
Lease Cost
Finance lease cost:
Amortization of right-of-use assets (1)	$	464	$	—
Interest on lease liabilities (2)		297		1
Operating lease cost		64		11
Short-Term lease cost		377		376
Variable lease cost (3)		94		36

Total lease cost	$	1,296	$	424

	Nine Months Ended September 30,
	2021		2020
Lease Cost
Finance lease cost:
Amortization of right-of use assets (1)	$	930	$	1
Interest on lease liabilities (2)		627		2
Operating lease cost		192		545
Short-Term lease cost		1,003		556
Variable lease cost (3)		164		108

Total lease cost	$	2,916	$	1,212

(1)	Amortization of right-of-use assets of $0.4 million and $0.9 million were capitalized as part of construction in progress during the three and nine months ended September 30, 2021, respectively, and included in "Property, plant and equipment, net" in the Consolidated Balance Sheets as the related Gevo RNG facilities are still under construction.
(2)	Interest on lease liabilities of $0.3 million and $0.6 million were capitalized as part of construction in progress during the three and nine months ended September 30, 2021, respectively, and included in "Property, plant and equipment, net" in the Consolidated Balance Sheets as the related Gevo RNG facilities are still under construction.
(3)	Represents amounts incurred in excess of minimum payments, including payments for common area expenses under our office and research facility lease, and additional amounts due under our Gevo RNG leases based on the number of cows maintained by the owners of the respective facilities.

	Nine Months Ended September 30,
	2021		2020
Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	627	$	2
Operating cash flows from operating leases		192		545
Finance cash flows from finance leases		5,975		1
Right-of-use asset obtained in exchange for new finance lease liabilities		28,416		13
Right-of-use asset obtained in exchange for new operating lease liabilities		1,611		—
Weighted-average remaining lease term, finance lease (months)		225		53
Weighted-average remaining lease term, operating leases (months)		88		10
Weighted-average discount rate - finance leases (3)		5%		21%
Weighted-average discount rate - operating leases (3)		5%		12%

(3)	The discount rate used for operating leases is based on our implicit borrowing rate ("IBR") at the date the Company entered into the lease. The Company estimated the IBR based collateralized borrowings for similar terms and payments.

The table below shows the future minimum payments under non-cancelable financing and operating leases at September 30, 2021 (in thousands):

Year Ending December 31,	Operating Leases			Finance Leases

2021 (remaining)	$	(241	)	$	1,950
2022		265			3,800
2023		297			1,708
2024		305			1,725
2025		315			1,738
2026 and thereafter		1,030			21,636
Total		1,971			32,557
Less: Amounts representing present value discounts		(374	)	(10,232		)

Total lease liabilities		1,597			22,325
Less: current portion		135			(2,727	)
Long-term portion	$	1,732		$	19,598