We determine if an arrangement is a lease at contract inception. If there is an identified asset in the contract (either explicitly or implicitly) and we have control over its use, the contract is (or contains) a lease. In determining if there is an identified asset, we apply judgment in assessing whether the supplier has a substantive substitution right based on the supplier’s practical ability to substitute the asset and the economic benefit to do so. If it is determined that a substantive substitution right exists, the contract is not a lease and is not accounted for under ASC Topic 842. With the respect to the servers utilized in certain of our hosting and data storage arrangements, the Company determined that a substantive substitution right existed given the location of the servers at the supplier’s premises, a lack of contractual restrictions preventing the supplier from substituting the servers throughout the period of use and the economic incentive for the supplier to substitute the servers as needed in order to efficiently handle varying levels of demand from its various customers.

Our operating leases are primarily for office facilities. Certain leases include options to extend the lease for a set number of years or early terminate the lease prior to the contractually defined expiration date. We include such extension periods in the lease term when it is reasonably certain that they will be exercised and include such periods beyond the early termination date when it is reasonably certain the early terminations will not be exercised. As of June 30, 2019, the weighted-average remaining lease term for our operating leases was 3.4 years.

We record right-of-use assets, current operating lease liabilities and noncurrent operating lease liabilities in our consolidated balance sheet for operating leases with lease terms greater than 12 months. We have elected not to apply the balance sheet recognition requirements to leases with lease terms of 12 months or less (“short-term leases”). Additionally, we do not separate lease components from non-lease components and therefore allocate the entire consideration to the lease component(s).

Right-of-use assets represent our right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and operating lease liabilities are recognized at the lease commencement date based on the present value of the total required fixed payments over the lease term, with the right-of-use assets further adjusted for any payments made prior to lease commencement, lease incentives received and/or initial direct costs incurred. Certain lease arrangements also include variable payments for costs such as common-area maintenance, utilities, taxes or other operating costs, which are based on a percentage of actual expenses incurred or a fluctuating rate which is unknown at the inception of the contract. These variable lease payments are excluded from the measurement of the lease liability.

In determining the present value of lease payments, we discount future lease payments using our incremental borrowing rate since the implicit rate in our various leases is unknown. The incremental borrowing rate is determined at lease commencement for each individual lease and is based on a number of factors, including relevant observable debt transactions, the current economic environment, lease term and currency in which the lease is denominated. As of June 30, 2019, the weighted-average incremental borrowing rate for our operating leases was 5.4%.

We recognize lease expense for operating leases and short-term leases on a straight-line basis over the lease term. Variable lease payments are recognized when the underlying uncertainty is resolved, which is generally when the obligation for those costs are incurred. These expenses are presented as operating expenses in the consolidated statement of operations. For the three and six months ended June 30, 2019, the components of lease expense were as follows (in thousands):

	Three Months Ended June 30,		Six Months Ended June 30,
	2019		2019
Operating lease expense	$	2,086	$	3,864
Variable lease expense		620		1,143
Total lease expense ⁽¹⁾	$	2,706	$	5,007

For the three and six months ended June 30, 2019, supplemental cash and noncash information related to operating leases, excluding any transition adjustments, was as follows (in thousands):

	Three Months Ended June 30,		Six Months Ended June 30,
	2019		2019
Fixed operating lease payments:	$	2,481	$	4,718
Right-of-use assets obtained in exchange for operating lease liabilities (noncash):	$	114	$	11,180

As of June 30, 2019, future lease payments related to our operating leases were as follows (in thousands):

Year ending December 31:	Operating Leases
Remaining 2019	$	5,258
2020		9,617
2021		7,824
2022		3,868
2023		2,917
2024		179
Thereafter		—
Total lease payments		29,663
Less: Imputed interest		(2,704	)
Total lease liability balance	$	26,959

We do not have any leases that have not yet commenced that create significant rights and obligations as of June 30, 2019.

During the third quarter of 2018, we executed an assignment of our Oxford office lease associated with our fourth quarter 2017 restructuring plan. The original lease term ends in November 2022, with a lessee option to early terminate in November 2019. All terms under the original lease were assigned in full to the assignee, with the assignee becoming primarily liable to make rental payments directly to the landlord. Further, the assignee was required to provide the landlord a security deposit equal to twelve months rent to be used by the landlord in the event of the assignee’s non-performance.

In connection with the assignment, the Company became secondarily liable in the event the assignee is unable to perform under the lease. Based on the current rent and related payments, the maximum exposure to the Company is estimated to be $1.9 million as of June 30, 2019. However, the lease is subject to periodic rate reviews which allow the landlord to make market adjustments to the rent and other related payments and accordingly, the maximum exposure may be greater than this amount. As of June 30, 2019, the estimated fair value of this guarantee is not material.

We own the building where our San Francisco headquarters is located and have operating lease arrangements with tenants for the remaining available office space. However, in connection the Sale Agreement, effective July 1, 2019, the Company sold all preexisting leases between the Company and its tenants to the buyer (refer to Note 5 – “Property and Equipment, Net” and Note 16 – “Subsequent Events” for further discussion). As a result, all lessor related assets and liabilities will be de-recognized or transferred upon the closing on July 1, 2019.

One tenant currently occupies a portion of the building and will eventually occupy approximately 43% of the building, with the lease term concluding in February 2027. The tenant also has two options to extend the lease term for a period of five years each. The original agreement provides for total lease payments of $167.3 million, including escalating lease payments and various lease incentives that are recognized on a straight-line basis over the lease term. In February 2019, the original agreement was amended to provide additional space to the tenant, resulting in an additional $5.1 million of lease payments to be received over the lease term and an additional $0.8 million of lease incentives for tenant improvements. As of June 30, 2019, we have a lease incentive obligation of $43.7 million related to tenant improvements under this lease which is classified as Liabilities Related to Assets Held for Sale in our consolidated balance sheet.

In October 2018, we entered into a lease agreement to provide approximately 17% of our San Francisco headquarters to another tenant which commenced in May 2019 and has a lease term concluding in September 2031. The tenant has an option to extend the lease term for an additional five years. The agreement provides for total lease payments of $144.9 million with escalating lease payments and various lease incentives, including a tenant improvement allowances. As of June 30, 2019 we have a lease incentive obligation of $2.4 million related to tenant improvements under this lease which is classified as Liabilities Related to Assets Held for Sale in our consolidated balance sheet.

We have operating lease arrangements with other tenants within our owned corporate headquarters, however, the lease payments are not material to the consolidated financial statements.

We do not separate lease components from non-lease components and therefore allocate the entire consideration in our contracts to the lease components. All of the lease and non-lease components qualify for accounting under ASC Topic 842.

We recognize lease income, net of the lease incentives, within other income (expense), net in the consolidated statement of operations. Variable payments for non-lease components generally include the tenants’ share of the building’s operating expenses, such as common-area maintenance and utilities, which are based on the tenant’s percentage share of total building expenses incurred or a fluctuating rate which is unknown at the inception of the contract. Variable costs are recognized as lease income in the period in which the underlying services are provided. Further, variable payments for the tenant’s share of building related taxes, which are based on a percentage of total building square footage occupied, are recognized as lease income in the period in which the taxes are incurred.

For the three and six months ended June 30, 2019, the components of lease income were as follows (in thousands):

	Three Months Ended June 30,		Six Months Ended June 30,
	2019		2019
Operating lease income	$	5,942	$	10,563
Variable lease income		606		1,103
Total lease income	$	6,548	$	11,666

As of June 30, 2019, prior to the sale of the Building, cash to be received from future operating lease payments is expected to be as follows (in thousands):

Year ending December 31:	Operating Leases
Remaining 2019	$	9,599
2020		25,909
2021		31,502
2022		32,447
2023		33,421
2024		34,423
Thereafter		136,372
Total lease payments	$	303,673