Leases

9 Months Ended

Sep. 30, 2022

Leases [Abstract]

Leases

Leases

The Company leases real estate and equipment under operating and finance leases, some of which are from related parties as discussed in Note 10 — Related Party Transactions. The most significant obligations under these lease agreements require the payments of periodic rentals, real estate taxes, insurance and maintenance costs. Depending on particular Showroom leases, the Company can also owe a percentage rent payment if particular Showrooms meet certain sales figures.

The following table summarizes the amounts recognized in our condensed consolidated balance sheets related to leases as of September 30, 2022 (amounts in thousands):

	Condensed Consolidated Balance Sheet Classification	September 30, 2022
Assets
Operating lease assets	Operating right-of-use assets	$	224,921
Finance lease assets	Financing right-of-use assets	39,062
Total leased assets		$	263,983
Liabilities
Current operating leases	Current portion of operating lease liabilities	$	39,248
Non-current operating leases	Operating lease liabilities, long-term	263,753
Total operating lease liabilities		303,001
Current finance leases	Current portion of financing lease liabilities	522
Non-current finance leases	Financing lease liabilities, long-term	51,908
Total finance lease liabilities		52,430
Total lease liabilities		$	355,431

The components of lease cost recognized within our condensed consolidated statements of comprehensive income for the nine and three months ended September 30, 2022 are as follows (amounts in thousands):

		Nine months ended September 30,		Three months ended September 30,
	Condensed Consolidated Income Statement Classification	2022		2022
Lease costs:
Operating lease costs	Cost of goods sold	$	25,798	$	8,716
Operating lease costs	Selling, general and administrative expenses	4,743		1,955
Finance lease costs
Amortization of right-of-use assets	Selling, general and administrative expenses	1,516		540
Interest expense on lease liabilities	Interest expense, net	3,758		1,270
Other lease costs(1)	Cost of goods sold	26,764		9,961
Other lease costs(1)	Selling, general and administrative expenses	507		170
Total lease costs		$	63,086	$	22,612

(1) Other lease costs includes short-term lease costs and variable lease costs.

Rent expense, amortization of landlord improvements and percentage rent expense calculated under ASC 840 were $47.1 million, $8.7 million and $2.5 million for the nine months ended September 30, 2021, respectively. Rent expense, amortization of landlord improvements and percentage rent expense calculated under ASC 840 were $15.8 million, $3.1 million and $1.3 million for the three months ended September 30, 2021, respectively.

We often have options to renew lease terms for Showrooms and other assets. The exercise of lease renewal options is generally at our sole discretion. In addition, certain lease agreements may be terminated prior to their original expiration date at our discretion. We evaluate each renewal and termination options at the lease commencement date to determine if

we are reasonably certain to exercise the option on the basis of economic factors. The table below summarizes the weighted average remaining lease terms as of September 30, 2022.

Weighted Average Remaining Lease Term (In Years)	September 30, 2022
Operating leases	8.59
Finance leases	22.66

The discount rate implicit within our finance leases was determined at the time of lease commencement. However, the discount rate implicit within our operating leases is generally not determinable at the time of lease commencement and therefore the Company determines the discount rate based on its incremental borrowing rate. For all operating leases, the Company utilized a market-based approach to estimate the incremental borrowing rate (“IBR”), which required significant judgment. The Company estimated the base IBR based on an analysis of (i) yields on the Company’s 2021 Credit Facility, as well as comparable companies and (ii) unsecured yields and discount rates. The Company applied adjustments to the base IBRs to account for full collateralization and lease term. The table below summarizes the weighted average discount rate used to measure our lease liabilities as of September 30, 2022.

Weighted Average Discount Rate	September 30, 2022
Operating leases	4.39	%
Finance leases	9.72	%

Future lease liabilities at September 30, 2022 are as follows (amounts in thousands):

Year Ending December 31,	Operating Lease Liabilities (1)		Finance Lease Liabilities		Total Lease Liabilities
Remainder of 2022	$	12,322	$	1,333	$	13,655
2023	51,708		5,333		57,041
2024	46,897		5,153		52,050
2025	40,472		5,153		45,625
2026	37,826		5,612		43,438
2027	34,218		5,423		39,641
Thereafter	146,193		115,168		261,361
Total lease payments	369,636		143,175		512,811
Less: Amounts representing interest	(66,635)		(90,745)		(157,380)
Total	$	303,001	$	52,430	$	355,431

(1) Includes leases with related parties. See Note 10 — Related Party Transactions for amounts leased from related parties.

At September 30, 2022, the Company has entered into leases for the expansion of our Boston Heights distribution center, Showrooms and equipment which have not yet commenced with expected lease terms ranging from 5 to 23 years. The aggregate minimum rental payments over the term of the leases of approximately $166.7 million are not included in the above table.

Future minimum lease payments for operating and capital leases under ASC 840 at December 31, 2021, were as follows (amounts in thousands):

Year Ending December 31,	Operating Leases (1)		Capital Leases		Total Future Lease Payments
2022	$	45,892	$	4,673	$	50,565
2023	43,507		4,673		48,180
2024	38,659		4,673		43,332
2025	33,125		4,673		37,798
2026	29,903		5,132		35,035
Thereafter	129,498		120,390		249,888
	320,584		144,214		464,798
Less: Amounts representing interest	—		(94,064)		(94,064)
Total	$	320,584	$	50,150	$	370,734

(1) Includes leases with related parties. See Note 10 — Related Party Transactions for amounts leased from related parties.

Supplemental cash flow information related to leases for the nine months ended September 30, 2022, is as follows (amounts in thousands):

	Nine months ended September 30, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	35,587
Operating cash flows for finance leases	3,758
Financing cash flows for finance leases	113
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	43,474
Finance leases	2,018

Leases

Leases

The Company leases real estate and equipment under operating and finance leases, some of which are from related parties as discussed in Note 10 — Related Party Transactions. The most significant obligations under these lease agreements require the payments of periodic rentals, real estate taxes, insurance and maintenance costs. Depending on particular Showroom leases, the Company can also owe a percentage rent payment if particular Showrooms meet certain sales figures.

The following table summarizes the amounts recognized in our condensed consolidated balance sheets related to leases as of September 30, 2022 (amounts in thousands):

	Condensed Consolidated Balance Sheet Classification	September 30, 2022
Assets
Operating lease assets	Operating right-of-use assets	$	224,921
Finance lease assets	Financing right-of-use assets	39,062
Total leased assets		$	263,983
Liabilities
Current operating leases	Current portion of operating lease liabilities	$	39,248
Non-current operating leases	Operating lease liabilities, long-term	263,753
Total operating lease liabilities		303,001
Current finance leases	Current portion of financing lease liabilities	522
Non-current finance leases	Financing lease liabilities, long-term	51,908
Total finance lease liabilities		52,430
Total lease liabilities		$	355,431

The components of lease cost recognized within our condensed consolidated statements of comprehensive income for the nine and three months ended September 30, 2022 are as follows (amounts in thousands):

		Nine months ended September 30,		Three months ended September 30,
	Condensed Consolidated Income Statement Classification	2022		2022
Lease costs:
Operating lease costs	Cost of goods sold	$	25,798	$	8,716
Operating lease costs	Selling, general and administrative expenses	4,743		1,955
Finance lease costs
Amortization of right-of-use assets	Selling, general and administrative expenses	1,516		540
Interest expense on lease liabilities	Interest expense, net	3,758		1,270
Other lease costs(1)	Cost of goods sold	26,764		9,961
Other lease costs(1)	Selling, general and administrative expenses	507		170
Total lease costs		$	63,086	$	22,612

(1) Other lease costs includes short-term lease costs and variable lease costs.

Rent expense, amortization of landlord improvements and percentage rent expense calculated under ASC 840 were $47.1 million, $8.7 million and $2.5 million for the nine months ended September 30, 2021, respectively. Rent expense, amortization of landlord improvements and percentage rent expense calculated under ASC 840 were $15.8 million, $3.1 million and $1.3 million for the three months ended September 30, 2021, respectively.

We often have options to renew lease terms for Showrooms and other assets. The exercise of lease renewal options is generally at our sole discretion. In addition, certain lease agreements may be terminated prior to their original expiration date at our discretion. We evaluate each renewal and termination options at the lease commencement date to determine if

we are reasonably certain to exercise the option on the basis of economic factors. The table below summarizes the weighted average remaining lease terms as of September 30, 2022.

Weighted Average Remaining Lease Term (In Years)	September 30, 2022
Operating leases	8.59
Finance leases	22.66

The discount rate implicit within our finance leases was determined at the time of lease commencement. However, the discount rate implicit within our operating leases is generally not determinable at the time of lease commencement and therefore the Company determines the discount rate based on its incremental borrowing rate. For all operating leases, the Company utilized a market-based approach to estimate the incremental borrowing rate (“IBR”), which required significant judgment. The Company estimated the base IBR based on an analysis of (i) yields on the Company’s 2021 Credit Facility, as well as comparable companies and (ii) unsecured yields and discount rates. The Company applied adjustments to the base IBRs to account for full collateralization and lease term. The table below summarizes the weighted average discount rate used to measure our lease liabilities as of September 30, 2022.

Weighted Average Discount Rate	September 30, 2022
Operating leases	4.39	%
Finance leases	9.72	%

Future lease liabilities at September 30, 2022 are as follows (amounts in thousands):

Year Ending December 31,	Operating Lease Liabilities (1)		Finance Lease Liabilities		Total Lease Liabilities
Remainder of 2022	$	12,322	$	1,333	$	13,655
2023	51,708		5,333		57,041
2024	46,897		5,153		52,050
2025	40,472		5,153		45,625
2026	37,826		5,612		43,438
2027	34,218		5,423		39,641
Thereafter	146,193		115,168		261,361
Total lease payments	369,636		143,175		512,811
Less: Amounts representing interest	(66,635)		(90,745)		(157,380)
Total	$	303,001	$	52,430	$	355,431

(1) Includes leases with related parties. See Note 10 — Related Party Transactions for amounts leased from related parties.

At September 30, 2022, the Company has entered into leases for the expansion of our Boston Heights distribution center, Showrooms and equipment which have not yet commenced with expected lease terms ranging from 5 to 23 years. The aggregate minimum rental payments over the term of the leases of approximately $166.7 million are not included in the above table.

Future minimum lease payments for operating and capital leases under ASC 840 at December 31, 2021, were as follows (amounts in thousands):

Year Ending December 31,	Operating Leases (1)		Capital Leases		Total Future Lease Payments
2022	$	45,892	$	4,673	$	50,565
2023	43,507		4,673		48,180
2024	38,659		4,673		43,332
2025	33,125		4,673		37,798
2026	29,903		5,132		35,035
Thereafter	129,498		120,390		249,888
	320,584		144,214		464,798
Less: Amounts representing interest	—		(94,064)		(94,064)
Total	$	320,584	$	50,150	$	370,734

(1) Includes leases with related parties. See Note 10 — Related Party Transactions for amounts leased from related parties.

Supplemental cash flow information related to leases for the nine months ended September 30, 2022, is as follows (amounts in thousands):

	Nine months ended September 30, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	35,587
Operating cash flows for finance leases	3,758
Financing cash flows for finance leases	113
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	43,474
Finance leases	2,018