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Leases

9 Months Ended

Sep. 30, 2021

NOTE 15 — LEASES

The Company is party to various lease agreements for real estate and transportation equipment. For each lease agreement, the Company determines its lease term as the non-cancellable period of the lease and includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option. The Company also assesses whether each lease is an operating or finance lease at the lease commencement date. Rent expense of operating leases is recognized on a straight-line basis over the lease term and includes scheduled rent increases as well as amortization of tenant improvement allowances.

Operating Leases

As of September 30, 2021, the Company is a tenant under various operating leases related to certain of its hubs, vending machines, IRCs, storage, parking and corporate offices. The initial terms expire at various dates between 2021 and 2032. Many of the leases include one or more renewal options ranging from one to twenty years and some contain purchase options.

In September 2021, the Company entered into a lease for additional corporate office space in Atlanta, Georgia. The lessor granted the Company access to a portion of the space during September 2021, and the landlord is expected to deliver access to the remainder of the space by February 2022. The initial lease term is for approximately 10 years with one option to renew the lease through May 1, 2037. The undiscounted future minimum lease payments for the portion of the lease that has not yet commenced is approximately $162 million over the initial term.

Also in September 2021, the Company entered into a lease for additional corporate office space in Los Angeles, California, which has not yet commenced. The initial lease term is for approximately 12 years with two five-year renewal options. The lease has total undiscounted future minimum lease payments of approximately $51 million over the initial lease term. Payments

will commence when the Company gains beneficial access to the leased asset. The commencement date is expected to occur in 2022.

The Company's operating leases are included in operating lease right-of-use assets, other current liabilities, and operating lease liabilities on the accompanying unaudited condensed consolidated balance sheets.

Refer to Note 6 — Related Party Transactions for further discussion of operating leases with related parties.

Finance Leases

The Company has finance leases for certain equipment in its transportation fleet. The leases have initial terms of two to five years, some of which include extension options for up to four additional years, and require monthly payments. The Company's finance leases are included in long-term debt on the accompanying unaudited condensed consolidated balance sheets.

Lease Costs and Activity

The Company's lease costs and activity during the three and nine months ended September 30, 2021 and 2020 were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

	(in millions)
Lease costs:
Finance leases:
Amortization of finance lease assets	$	11	$	4	$	26	$	11
Interest obligations under finance leases	2		1		5		3
Total finance lease costs	$	13	$	5	$	31	$	14

Operating leases:
Fixed lease costs to non-related parties	$	14	$	8	$	35	$	21
Fixed lease costs to related parties	1		2		4		6
Variable short-term lease costs to related parties	1		1		1		1
Total operating lease costs	$	16	$	11	$	40	$	28

Cash payments related to lease liabilities included in operating cash flows:
Operating lease liabilities to non-related parties					$	23	$	12
Operating lease liabilities to related parties					$	4	$	6
Interest payments on finance lease liabilities					$	5	$	3

Cash payments related to lease liabilities included in financing cash flows:
Principal payments on finance lease liabilities					$	35	$	13

Maturity Analysis of Lease Liabilities

The following table summarizes maturities of lease liabilities as of September 30, 2021:


			Operating Leases (1)
	Finance Leases		Related Party (2)		Non-Related Party		Total Operating		Total

	(in millions)
Remainder of 2021	$	13	$	1	$	12	$	13	$	26
2022	46		5		46		51		97
2023	43		5		42		47		90
2024	34		4		36		40		74
2025	25		3		35		38		63
Thereafter	13		6		218		224		237
Total minimum lease payments	174		24		389		413		587
Less: amount representing interest	(17)		(5)		(120)		(125)		(142)

Total lease liabilities	$	157	$	19	$	269	$	288	$	445

_________________________

(1) Leases that are on a month-to-month basis, short-term leases, and lease extensions that the Company does not expect to exercise are not included.

(2) Related party lease payments exclude rent payments due under the DriveTime Lease Agreement and the DriveTime Hub Lease Agreement for locations where the Company shares space with DriveTime, as those are variable lease payments contingent upon the Company's utilization of the leased assets.

As of September 30, 2021 and December 31, 2020, none of the Company's lease agreements contain material residual value guarantees or material restrictive covenants.

Lease Terms and Discount Rates

The weighted-average remaining lease terms and discount rates as of September 30, 2021 and 2020 were as follows, excluding short-term operating leases:


	As of September 30,
	2021		2020
Weighted-average remaining lease terms (years)
Operating leases	9.2		10.6
Finance leases	4.4		4.3
Weighted-average discount rate
Operating leases	7.5	%	8.3	%
Finance leases	5.4	%	5.3	%

Leases