Leases

6 Months Ended

Jun. 30, 2022

11.

Leases

The Company leases real estate, vehicle and equipment for use in its operations. The Company’s leases generally have lease terms of one to 30 years, some of which include options to terminate, or to extend leases. The Company includes options that are reasonably certain to be exercised as part of the determination of lease terms. The Company may negotiate termination clauses in anticipation of any changes in market conditions, but generally these termination options are not exercised. Residual value guarantees are generally not included within operating leases. In addition to base rent payments, the leases may require the Company to pay directly for taxes and other non-lease components, such as insurance, maintenance and other operating expenses, which may be dependent on usage or vary month-to-month.

On January 26, 2021, the Company entered into a five-year lease agreement for 115,500 square feet within a 136,500 square foot building for the Company's fulfillment and distribution operations, located in Summerville, South Carolina. Rent was abated for the first three months while the Company installed racking, packing stations and other required equipment, prior to the Company's shipping operations to this facility. This lease terminates in July 2026. The lease has two renewal options for three years each. The Company has funded a customary security deposit of $0.1 million upon execution of the lease, which has been recorded within other assets on the condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021.

On July 28, 2021, the Company entered into a lease agreement for a 360,320 square foot industrial building for the Company's finished goods warehousing and shipping operations, located in Summerville, South Carolina. The building is currently under construction and the lease will commence on the date of which the landlord completes construction of the facility and required tenant improvements, currently estimated to be during the first quarter of 2023 and will terminate upon the thirteenth anniversary of the commencement date. The lease has one renewal option for a five-year term. The lease provides for an allowance for tenant improvements of up to $1.3 million. The annual base rent for the first year will be $2.0 million and is subject to an annual escalation of 2.0% on each anniversary. The Company has funded a customary security deposit of $0.3 million upon execution of the lease which has been recorded within other assets on the condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021.

On March 10, 2022, the Company amended the lease agreement for its headquarters in New York, New York. The amended agreement grants an additional right-of-use (“second substitute premises”) to the Company in the future following the expiration of its current lease. The second substitute premises are estimated to be substantially complete during the third quarter of 2022. The amendment will commence on September 12, 2022 and will terminate on the five year anniversary of the rent commencement date.

The balances for the operating and finance leases where the Company is the lessee are presented as follows within the condensed consolidated balance sheets:


	June 30, 2022		December 31, 2021
Operating lease:
Operating lease right-of-use assets, net	$	16,203,487	$	17,836,756

Current portion of operating lease liabilities		1,599,190		2,633,236
Operating lease liabilities, net of current portion		27,026,923		27,605,739
Total operating lease liabilities	$	28,626,113	$	30,238,975

Finance lease:
Finance lease right-of-use assets	$	716,402	$	883,076

Current portion of finance lease liabilities		391,003		413,487
Finance lease liabilities, net of current portion		348,352		482,544
Total finance lease liabilities	$	739,355	$	896,031

The components of lease expense are as follows within the condensed consolidated statements of operations:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Operating lease expense:
Operating lease cost(1)	$	1,461,356	$	1,369,459	$	2,922,711	$	2,602,167
Finance lease expense:
Amortization of leased assets		107,112		94,418		219,512		168,333
Interest on lease liabilities		10,459		13,748		22,047		25,048
Total lease expense	$	1,578,927	$	1,477,625	$	3,164,270	$	2,795,548

(1) Includes short-term leases and variable lease costs, which are immaterial.

The weighted-average remaining lease term and weighted-average discount rate as of June 30, 2022 and December 31, 2021, were as follows:


	June 30, 2022			December 31, 2021
Weighted average remaining lease term (years)
Operating leases	13.93 years			13.73 years
Finance leases	2.01 years			2.33 years
Weighted average discount rate applied
Operating leases		8.9	%		9.2	%
Finance leases		5.9	%		6.1	%

Supplemental cash flow information related to leases where the Company is the lessee is as follows:


	Six Months Ended June 30,
	2022		2021
Operating cash outflows from operating leases	$	2,902,305	$	3,244,257
Operating cash outflows from finance leases (interest payments)	$	22,047	$	25,048
Financing cash outflows from finance leases	$	209,514	$	171,734
Leased assets obtained in exchange for finance lease liabilities	$	52,838	$	420,361
Leased assets obtained in exchange for operating lease liabilities	$	—	$	2,913,002

As of June 30, 2022, the maturities of the operating and finance lease liabilities are as follows:


	Operating Leases		Finance Leases
Remainder of 2022	$	2,218,628	$	233,900
2023		3,497,422		343,422
2024		3,589,920		157,455
2025		3,559,583		22,189
2026		3,325,639		38,944
Thereafter		35,705,779		—
Total lease payments	$	51,896,971	$	795,910
Less: imputed interest		23,270,858		56,555
Total present value of lease liabilities	$	28,626,113	$	739,355
Less: current portion of lease liabilities		1,599,190		391,003
Long-term portion of lease liabilities	$	27,026,923	$	348,352

In 2016, the Company entered into a new lease agreement for office, warehouse and production space in Summerville, South Carolina. The Company was required to provide the landlord with a $4.9 million irrevocable letter of credit as a security deposit (see Note 10). The required security deposit may be reduced upon the attainment of certain EBITDA levels.