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LEASES

3 Months Ended

Mar. 31, 2020

The Company adopted ASU 2016-02 effective January 1, 2019. The Company’s lease portfolio primarily consists of real estate leases for its corporate headquarters, regional corporate offices and its facilities which are leased under noncancelable operating and finance leases expiring in various years through 2035. Most lease agreements cover periods from five to fifteen years and contain renewal options of five to ten years at the fair rental value at the time of renewal. Certain leases are subject to rent holidays and/or escalation clauses.

Certain of the Company’s lease agreements include rental payments adjusted periodically for the consumer price index and real estate taxes. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company has lease agreements with lease and non-lease components and has elected to determine by asset class whether to separate these components. The Company has elected not to separate lease and non-lease components for real estate leases. Because the Company’s current leases do not provide an implicit rate of return, the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The incremental borrowing rate represents the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term based on the information available at commencement date of the lease.

The Company leases certain facilities from noncontrolling interest members or entities under the control of noncontrolling interest members. Rent expense under these lease arrangements was $2,828 and $2,835 in the three months ended March 31, 2020 and 2019, respectively. The Company subleases space at certain of these facilities to the noncontrolling interest members. Rental income under these sublease arrangements, which extend to 2033, amounted to $233 and $257 in the three months ended March 31, 2020 and 2019, respectively. Future income of $4,137 due from these related parties are included in sublease income presented below. The Company subleases space in certain of its facilities to nephrologist partners at market values under non‑cancelable operating leases expiring in various years through 2033. Rental income under all subleases, including those noted above, was $462 and $438 in the three months ended March 31, 2020 and 2019, respectively.

The components of lease expense were as follows:



	Three Months Ended
Lease Cost	March 31, 2020			March 31, 2019
Operating lease cost	$	8,261		$	7,834
Finance lease cost:
Amortization of right-of-use assets	165			145
Interest on lease liabilities	178			141
Short-term lease cost (1)	86			72
Variable lease cost	3,031			2,562
Less: Sublease income	(462		)	(438		)
Total lease cost	$	11,259		$	10,316

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(1)	Short-term leases are leases having a term of twelve months or less. The Company elected to recognize short-term leases on a straight-line basis and does not record a related lease asset or liability for such leases.

Supplemental cash flow information related to leases was as follows:



	Three Months Ended
Other Information	March 31, 2020		March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	8,211	$	7,871
Operating cash flows from finance leases	178		141
Financing cash flows from finance leases	79		15
Right-of-use assets obtained in exchange for new or modified lease obligations:
Operating leases	8,851		4,818
Finance leases	—		—

Supplemental balance sheet information related to leases was as follows:



	As of March 31, 2020			As of December 31, 2019
Operating Leases
Operating lease right-of-use assets	$	138,640		$	133,899

Current portion of operating lease liabilities	$	22,926		$	22,061
Long-term operating lease liabilities, less current portion	128,055			123,792
Total operating lease liabilities	$	150,981		$	145,853

Finance Leases
Property and equipment, at cost	$	7,488		$	7,499
Accumulated depreciation	(753		)	(588		)
Property and equipment, net	$	6,735		$	6,911

Current portion of long-term debt	$	401		$	390
Long-term debt, less current portion	7,289			7,390
Total finance lease liabilities	$	7,690		$	7,780

Weighted Average Remaining Lease Term
Operating leases	7.2 years			7.1 years
Finance leases	10.7 years			10.9 years
Weighted Average Discount Rate
Operating leases	7.0		%	7.0		%
Finance leases	9.8		%	9.7		%

Future minimum lease payments under noncancelable operating leases, net of sublease receipts and finance leases as of March 31, 2020, are as follows:



Year Ended December 31,	Operating Leases		Less: Sublease Income		Net Operating Lease		Finance Leases
2020 (excluding the three months ended March 31, 2020)	$	25,281	$	1,185	$	24,096	$	820
2021	32,531		1,614		30,917		1,107
2022	30,203		1,635		28,568		1,123
2023	25,774		1,119		24,655		1,140
2024	21,374		607		20,767		1,188
Thereafter	64,570		2,575		61,995		7,532
Total minimum lease payments	$	199,733	$	8,735	$	190,998	$	12,910
Less: amount representing interest	44,461						5,220
Present value of lease liabilities held for sale	4,291						—
Present value of lease liabilities	$	150,981					$	7,690

Future minimum lease payments under noncancelable operating leases, net of sublease receipts and finance leases as of December 31, 2019, are as follows:



Year Ended December 31,	Operating Leases		Less: Sublease Income		Net Operating Leases		Finance Leases
2020	$	32,691	$	1,607	$	31,084	$	1,093
2021	31,105		1,641		29,464		1,108
2022	28,637		1,662		26,975		1,123
2023	24,242		1,142		23,100		1,141
2024	19,844		607		19,237		1,188
Thereafter	57,893		2,575		55,318		7,495
Total minimum lease payments	$	194,412	$	9,234	$	185,178	$	13,148
Less: amount representing interest	42,792						5,368
Present value of lease liabilities held for sale	5,767						—
Present value of lease liabilities	$	145,853					$	7,780

As of March 31, 2020, the Company has an additional finance lease obligation that has not yet commenced of $992. This finance lease is expected to commence during fiscal year 2021 with a lease term of 10 years.

LEASES