LEASES

6 Months Ended

Jun. 30, 2019

Lessor

On May 29, 2019, we foreclosed on the loan collateral consisting of 100% of the membership interests in the limited liability company owning the underlying property of Hertz Broadway Tower, LLC, a private company, in full satisfaction of the outstanding defaulted loan. As a result, we acquired the Broadway Tower, LLC’s building, related assets and business operations and assumed related liabilities. The Company assumed 51 commercial office leases where the Company is the lessor in lease arrangements for the building’s floor space and parking spaces. (See Note 4 for further discussion of this transaction).

Prior to the foreclosure transaction, Hertz Broadway Tower, LLC accounted for the leases under ASC 840 - Leases. Upon our acquisition on May 29, 2019, the Company adopted the requirements of ASU 2016-02 for such leases. The lessor accounting model under ASU 2016-02 is similar to existing guidance, however, it limits the capitalization of initial direct leasing costs, such as internally generated costs. The adoption of ASU 2016-02 for this lease did not have an impact in our consolidated financial statements. The Company elected the practical expedient package outlined in ASU No. 2016-02 under which we were not required to reassess whether the arrangements contain a lease, and we carried forward the previous classification of the leases as operating, and we did not have to reassess previously recorded initial direct costs.

These lease arrangements have been recorded in revenue for approximately one month during the three months ended June 30, 2019. The Company’s operating leases have non-cancelable lease terms of 0.9 years to 10.1 years as of June 30, 2019. Certain leases with tenants include options to extend or terminate the lease agreements. The Company believes the residual value risk is not a primary risk because of the long-lived nature of the asset.

The following table presents minimum lease revenues and variable lease revenue for the three and six months ended June 30, 2019 (in thousands).



	Three and Six Months Ended June 30,
	2019		2018
Lease revenue
Fixed rent - Minimum lease revenue	$	377	$	—
Variable lease revenue	21		—
Total lease revenue	$	398	$	—

Variable rent includes costs reimbursed related to property operating expenses, common area maintenance, insurance and property taxes.

The following table presents future minimum operating lease payments due to the Company over the next five years and thereafter (in thousands).



Years ending	Amount
Remainder of 2019	$	1,808
2020	3,748
2021	3,800
2022	3,420
2023	2,311
Thereafter	3,643
Total	$	18,730

Lessee

We have operating leases for corporate headquarters office space and certain equipment. Our leases have remaining lease terms of one year to four, one of which includes an option to extend the lease for up to five years. The option to extend the lease relates to our corporate office lease and is not included in the calculation of the ROU assets and lease liabilities because the Company is not reasonably certain that it will exercise the option. Lease expense was $0.1 million and for the three months ended June 30, 2019 and 2018, respectively, and $0.2 million for the six months ended June 30, 2019 and 2018, respectively, which is included in general and administrative expenses in the accompanying condensed consolidated statement of operations. Variable lease payments are not included in the calculation of the right-of-use asset and lease liability due to uncertainty of the payment amount and were $0.1 million and $0.1 million for the three months ended June 30, 2019 and 2018, respectively, and $0.1 million and $0.1 million for the six months ended June 30, 2019 and 2018, respectively.

Supplemental cash flow information related to leases for the six months ended June 30, 2019 (in thousands):



Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating lease	$	181

Non-cash investing and financing activities:
Right-of-use assets and lease liabilities recorded upon adoption of ASC 842
Right-of-use assets	$	1,574
Lease liabilities	$	1,693

Supplemental balance sheet information related to leases as of June 30, 2019 was as follows (thousands, except lease term and discount rate):



Operating leases
Operating lease right-of-use assets in other assets	$	1,440

Operating lease liabilities in accounts payable and other accrued expenses	$	1,548

Weighted average remaining lease term	3.0 years
Operating leases - Weighted average discount rate	7.1%

The following represents future payments on operating leases as of June 30, 2019 (in thousands):



Years ending	Amount
Remainder of 2019	$	287
2020	575
2021	577
2022	304
Total lease payments	1,743
Less imputed interest	(195		)
Total	$	1,548

As of December 31, 2018, future minimum lease payments required under these various lease agreements are as follows (in thousands):



Years ending	Amount
2019	$	305
2020	307
2021	308
2022	233
Total	$	1,153

LEASES