Note 5. Leases

The Company leases its retail space at various domestic and international airports. Additionally, the Company leases its corporate office in New York City. Certain leases entered into by the Company fall under ASU No. 2016-02, Leases (“ASC 842”). At inception, the Company determines if a lease qualifies under ASC 842. Certain of the Company’s lease arrangements contain fixed payments throughout the term of the lease while others involve a variable component to determine the lease obligation wherein a certain percentage of sales is used to calculate the lease payments. Certain leases that expire and are then extended on a month-to-month basis are not included in the calculation of the total lease liability and the right of use asset after they convert to month-to-month.

All qualifying leases held by the Company are classified as operating leases. Operating lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized as of the commencement date based on the present value of lease payments over the lease term. The Company records its operating lease assets and liabilities based on required guaranteed payments under each lease agreement. The Company uses its incremental borrowing rate as of the commencement date of the lease, which approximates the rate at which the Company can borrow funds on a secured basis, in determining the present value of the guaranteed lease payments.

The Company reviews all of its existing lease agreements on a quarterly basis to determine whether there were any modifications to existing lease agreements and to assess if any leases should be accounted for pursuant to the guidance in ASC 842. The Company recalculates the right of use asset and lease liability based on the modified lease term and adjusted both balances.

The Company has received rent concessions from landlords on a majority of its leases, allowing for the relief of minimum guaranteed payments in exchange for percentage-of-revenue rent in most cases, and in certain cases providing relief from rent required to be paid as a percentage of revenue in excess of minimum guaranteed amounts for the month. The relief from these rent payments range from three- to ten-month periods beginning in March 2020. The Company did not pay a total of approximately $75 in rent in March 2020 as a result of receiving these concessions.

The Financial Accounting Standards Board (“FASB”) issued a Q&A in March 2020 that focused on the application of lease guidance in ASC 842 for lease concessions related to the effects of COVID-19. The FASB staff has said that entities can elect to not evaluate whether concessions granted by lessors related to COVID-19 are lease modifications. Entities that make this election can then apply the lease modification guidance in ASC 842 or account for the concession as if it were contemplated as part of the existing contract. XpresSpa has elected to not treat the concessions as lease modifications and will instead account for the lease concessions as if they were contemplated as part of the existing leases.

When a lessor grants a concession that contractually releases a lessee from certain lease payments or defers lease payments, a lessee may account for the concession as a negative variable lease payment and recognize negative variable lease expense in the period when the rent concession becomes accruable. The Company did not record rent expense for the month which it received a concession from the landlord. Since negative variable lease expense is not recognized until it becomes accruable, lease liabilities will not be adjusted until the actual month that the rent is accruable.

There were no lease modifications during the period.The following is a summary of the activity in the Company’s operating lease liabilities for the three months ended March 31, 2020:


Operating lease liabilities, January 1, 2020	$	9,495
New leases entered		—
Extension of term of existing lease obligations		—
Termination of existing qualifying leases		—
Payments of lease obligations		(628)
Operating lease liabilities, March 31, 2020	$	8,867

As of March 31, 2020, operating leases contain the following future minimum commitments:


Calendar Years ending December 31,	Amount
Remainder of 2020	$	2,973
2021		3,145
2022		2,428
2023		1,454
2024		664
Thereafter		624
Total future lease payments		11,288
Less: interest expense at incremental borrowing rate		(2,421)
Net present value of lease liabilities	$	8,867

Other assumptions and pertinent information related to the Company’s accounting for operating leases are:


Weighted average remaining lease term:		4.6	years
Weighted average discount rate used to determine present value of operating lease liability:		10.98	%
Cash paid for minimum annual rental obligations during the three months ended March 31, 2020:	$	725

Variable lease payments calculated monthly as a percentage of a product and services revenue, were $477 and $338 for the three months ended March 31, 2020 and 2019, respectively.

Amortization expense of right of use lease assets was $527 and $271 for the three months ended March 31, 2020 and 2019, respectively.