LEASES

The Company leases office space, office equipment, refinery facilities and equipment, railcars and other logistics assets primarily under non-cancelable operating leases, with terms typically ranging from one to twenty years, subject to certain renewal options as applicable. The Company considers those renewal or termination options that are reasonably certain to be exercised in the determination of the lease term and initial measurement of lease liabilities and right-of-use assets. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Interest expense for finance leases is incurred based on the carrying value of the lease liability. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

The Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company must discount lease payments based on an estimate of its incremental borrowing rate.

The Company does not separate lease and nonlease components of contracts for any of its asset classes. There are no material residual value guarantees associated with any of the Company’s leases. There are no significant restrictions or covenants included in the Company’s lease agreements other than those that are customary in such arrangements. Certain of the Company’s leases, primarily for the Company’s commercial and logistics asset classes, include provisions for variable payments. These variable payments are typically determined based on a measure of throughput or actual days the asset is operated during the contract term or another measure of usage and are not included in the initial measurement of lease liabilities and right-of-use assets.

Lease Position as of September 30, 2019

The table below presents the lease related assets and liabilities recorded on the Company’s Condensed Consolidated Balance Sheets as of September 30, 2019:



(in millions)	Classification on the Balance Sheet	September 30, 2019
Assets
Operating lease assets - third party	Operating lease right of use assets - third party	$	331.0
Operating lease assets - affiliate	Operating lease right of use assets - affiliate	666.2
Finance lease assets	Deferred charges and other assets, net	13.8
Total lease right of use assets		$	1,011.0

Liabilities
Current liabilities:
Operating lease liabilities - third party	Current operating lease liabilities - third party	$	78.1
Operating lease liabilities - affiliate	Current operating lease liabilities - affiliate	75.7
Finance lease liabilities - third party	Accrued expenses	1.1
Noncurrent liabilities:
Operating lease liabilities - third party	Long-term operating lease liabilities - third party	251.9
Operating lease liabilities - affiliate	Long-term operating lease liabilities - affiliate	590.4
Finance lease liabilities - third party	Other long-term liabilities	13.1
Total lease liabilities		$	1,010.3

Lease Costs

The table below presents certain information related to costs for the Company’s leases for the three and nine months ended September 30, 2019:



Lease Costs (in millions)	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Components of total lease cost:
Finance lease cost
Amortization of lease right of use assets	$	0.3	$	0.7
Interest on lease liabilities	0.3		0.5
Operating lease cost	60.3		176.5
Short-term lease cost	22.4		70.8
Variable lease cost	9.7		23.9
Total lease cost	$	93.0	$	272.4

There were no net gains or losses on any sale-leaseback transactions for the three and nine months ended September 30, 2019.

Other Information

The table below presents supplemental cash flow information related to leases for the nine months ended September 30, 2019 (in millions):



Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	179.1
Operating cash flows for finance leases	0.5
Financing cash flows for finance leases	0.4
Supplemental non-cash amounts of lease liabilities arising from obtaining right-of-use assets	286.0

Lease Term and Discount Rate

The table below presents certain information related to the weighted average remaining lease term and weighted average discount rate for the Company’s leases as of September 30, 2019:



Weighted average remaining lease term - operating leases	8.9 years
Weighted average remaining lease term - finance leases	9.5 years

Weighted average discount rate - operating leases	7.92	%
Weighted average discount rate - finance leases	6.83	%

Undiscounted Cash Flows

The table below reconciles the fixed component of the undiscounted cash flows for each of the periods presented to the lease liabilities recorded on the Condensed Consolidated Balance Sheets as of September 30, 2019:



Amounts due within twelve months of September 30, (in millions)	Finance Leases		Operating Leases
2019	$	2.0	$	227.5
2020	2.0		198.2
2021	2.0		170.3
2022	2.0		162.3
2023	2.0		157.8
Thereafter	9.4		493.4
Total minimum lease payments	19.4		1,409.5
Less: effect of discounting	5.2		413.4
Present value of future minimum lease payments	14.2		996.1
Less: current obligations under leases	1.1		153.8
Long-term lease obligations	$	13.1	$	842.3

As of September 30, 2019, the Company has entered certain leases that have not yet commenced. Such leases include a 15-year lease for hydrogen supply, with future lease payments estimated to total approximately $212.6 million, expected to commence in the second quarter of 2020. No other such pending leases, either individually or in the aggregate, are material. There are no material lease arrangements in which the Company is the lessor.

In the normal course of business, the Company enters into certain affiliate lease arrangements with PBFX for the use of certain storage, terminaling and pipeline assets. The Company believes the terms and conditions under these leases are generally no less favorable to either party than those that could have been negotiated with unaffiliated parties with respect to similar services. The terms for these affiliate leases generally range from seven to fifteen years. The Company uses the same methodology for discounting the lease payments on affiliate leases as it does for third party leases as described above. For the three and nine months ended September 30, 2019, the Company incurred operating lease costs, related to affiliate operating leases, of $32.1 million and $96.1 million, respectively. As of September 30, 2019, the Company had recorded right-of-use assets, short-term lease obligations and long-term lease obligations of $666.2 million, $75.7 million and $590.4 million, respectively, associated with these affiliate operating leases.