Leases

9 Months Ended

Sep. 30, 2019

Leases

Leases

7. Leases

The Company leases property and equipment throughout the United States primarily under operating leases. For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of lease payments over the term. Many of the Company’s leases include rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments when appropriate. The Company aggregates non-lease components with the related lease components when evaluating the accounting treatment for equipment and billboard leases.

Many of the Company’s lease agreements include fixed rental payments. Certain of its lease agreements include fixed rental payments that are adjusted periodically for changes in the Consumer Price Index (“CPI”). Payments based on a change in an index or a rate are not considered in the determination of lease payments for purposes of measuring the related lease liability. While lease liabilities are not remeasured as a result of changes to the CPI, changes to the CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments are incurred.

Most of the Company’s real estate leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The exercise of lease renewal options is at the Company’s sole discretion. If it is reasonably certain that the Company will exercise such options, the periods covered by such options are included in the lease term and are recognized as part of the operating lease assets and operating lease liabilities. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of its leases do not provide a readily determinable implicit rate. Therefore, the Company must estimate its incremental borrowing rate to discount the lease payments based on information available at lease commencement.

The Company leases most of the properties for its RV and outdoor retail locations through 274 operating leases. The Company also leases billboards and certain of its equipment primarily through operating leases. The related right-of-use (“ROU”) assets for these operating leases are included in operating lease assets. The Company has one finance lease for equipment, which is not material.

As of September 30, 2019, the weighted-average remaining lease term and weighted-average discount rate of operating leases was 13.2 years and 7.6%, respectively.

The following presents certain information related to the costs for operating leases during 2019:

	Three Months Ended		Nine Months Ended
	September 30, 2019		September 30, 2019
Operating lease cost	$	30,469	$	91,287
Short-term lease cost		851		2,437
Variable lease cost		550		1,652
Sublease income		(480)		(996)
Net lease costs	$	31,390	$	94,380

The following presents supplemental cash flow information related to leases during 2019:

	Nine Months Ended
	September 30, 2019
Cash paid for amounts included in the measurement of lease liability:
Operating cash flows for operating leases	$	90,835
ROU assets obtained in exchange for lease liabilities:
Operating leases	$	86,349

The following reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities on the balance sheet as of September 30, 2019:

	Operating
	Leases
2019	$	31,119
2020		123,467
2021		122,212
2022		117,288
2023		113,744
Thereafter		958,629
Total lease payments		1,466,459
Less: Imputed interest		(557,300)
Total lease obligations		909,159
Less: Current portion		(58,211)
Noncurrent lease obligations	$	850,948

Disclosures related to periods prior to the adoption of ASC 842

The Company leases operating facilities throughout the United States. Prior to January 1, 2019, the Company analyzed all leases in accordance with ASC 840. The Company has included the right to use assets in property and equipment, net, as follows (in thousands):

	December 31,
	2018
Right to use assets	$	5,400
Accumulated depreciation		(540)
	$	4,860

The following is a schedule by year of the future changes in the right to use liabilities as of December 31, 2018 (in thousands):

2019	$	486
2020		486
2021		486
2022		486
2023		486
Thereafter		7,889
Total minimum lease payments		10,319
Amounts representing interest		(5,172)
Present value of net minimum right to use liability payments	$	5,147

Future minimum annual fixed rentals under operating leases having an original term of more than one year as of December 31, 2018, were as follows (in thousands):

	Third Party		Related Party		Total
2019	$	116,131	$	2,248	$	118,379
2020		111,008		2,248		113,256
2021		106,740		2,248		108,988
2022		102,496		2,145		104,641
2023		99,594		1,930		101,524
Thereafter		811,228		18,951		830,179
Total	$	1,347,197	$	29,770	$	1,376,967

For the three and nine months ended September 30, 2018, $28.5 million and $83.6 million of rent expense was charged to costs and expenses, respectively.