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Leases

6 Months Ended

Jun. 30, 2019

The Company leases space to operate corporate-owned stores, equipment, office, and warehouse space. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. For leases beginning in 2019 and later, we account for fixed lease and non-lease components together as a single, combined lease component. Variable lease costs, which may include common area maintenance, insurance, and taxes are not included in the lease liability and are expensed in the period incurred.

Our corporate-owned store leases generally have remaining terms of one to ten years, and typically include one or more renewal options, with renewal terms that can generally extend the lease term from three to ten years or more. The exercise of lease renewal options is at our sole discretion. The Company includes options to renew in the expected term when they are reasonably certain to be exercised. The depreciable life of assets and leasehold improvements are limited by the expected lease term.

Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease ROU assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs and lease incentives. To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates corresponding to the maturities of the leases based upon interpolated rates using our Class A-2 Notes.

The Company has certain non-real estate leases that are accounted for as finance leases under ASC 842, which is similar to the accounting for capital leases under the previous standard. These leases are immaterial, and therefore the Company has not included them in them in the tables below, except for their location on the consolidated balance sheet.

Our leases typically contain rent escalations over the lease term. We recognize expense for these leases on a straight-line basis over the lease term. Additionally, tenant incentives used to fund leasehold improvements are recognized when earned and reduce our ROU asset related to the lease. These tenant incentives are amortized as reduction of rent expense over the lease term.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

For periods prior to January 1, 2019, the Company recognized rent expense related to leases on a straight-line basis over the term of the lease. The difference between rent expense and rent paid, if any, as a result of escalation provisions and lease incentives, such as tenant improvements provided by lessors, was recorded as deferred rent in the Company’s consolidated balance sheets.



Leases	Classification	June 30, 2019
Assets
Operating lease assets	Right of use asset, net	$	115,390
Finance lease assets	Property and equipment, net of accumulated depreciation	268
Total lease assets		$	115,658

Liabilities
Current:
Operating	Other current liabilities	$	13,277
Noncurrent:
Operating	Lease liabilities, net of current portion	113,748
Financing	Other liabilities	299
Total lease liabilities		$	127,324

Weighted-average remaining lease term (years) - operating leases		8.2

Weighted-average discount rate - operating leases		5.0		%

During the three and six months ended June 30, 2019, the components of lease cost were as follows:



	Three months ended June 30, 2019		Six months ended June 30, 2019
Operating lease cost	$	4,951	$	9,796
Variable lease cost	2,033		3,973
Total lease cost	$	6,984	$	13,769

The Company's costs related to short-term leases, those with a duration between one and twelve months, were immaterial.

Supplemental disclosures of cash flow information related to leases were as follows:



	Three months ended June 30, 2019		Six months ended June 30, 2019
Cash paid for lease liabilities	$	4,718	$	9,365
Operating assets obtained in exchange for operating lease liabilities	$	2,981	$	2,981

As of June 30, 2019, maturities of lease liabilities were as follows:



	Amount
Remainder of 2019	$	9,663
2020	19,676
2021	20,026
2022	19,722
2023	18,565
Thereafter	68,811
Total lease payments	$	156,463
Less: imputed interest	29,139
Present value of lease liabilities	$	127,324

As of June 30, 2019, operating lease payments exclude approximately $50,927 of legally binding minimum lease payments for leases signed but not yet commenced.

As of December 31, 2018, under the previous accounting guidance for leases, approximate annual future commitments under noncancelable operating leases were as follows:



	Amount
2019	$	15,911
2020	15,219
2021	13,454
2022	12,561
2023	11,133
Thereafter	45,324
Total	$	113,602

Leases