Leases

9 Months Ended

Sep. 30, 2019

8. Leases

Chemed and each of its operating subsidiaries are service companies. As such, real estate leases comprise the largest lease obligation (and conversely, right of use asset) in our lease portfolio. VITAS has leased office space, as well as space for IPUs and/or contract beds within hospitals. Roto-Rooter has leased office space. Our leases have remaining terms of under 1 year to 10 years, some of which include options to extend the lease for up to 5 years, and some of which include options to terminate the lease within 1 year.

We made a policy election to exclude leases with a lease term less than 12 months from being recorded on the balance sheet. We adopted the practical expedient related to the combining of lease and non-lease components, which allows us to account for the lease and non-lease components as a single lease component.

Adoption of the new standard resulted in right of use assets and lease liabilities of approximately $87.8 million and $98.7 million, respectively, as of March 31, 2019. In determining the liability, we used our incremental borrowing rate based on the information available at the time of adoption, since the rate implicit in the leases cannot be readily determined. At

January 1, 2019, the weighted average rate was 3.47%. The standard did not materially impact our consolidated net income or cash flows. We did not book a cumulative effect adjustment upon adoption of the standard.

We do not currently have any finance leases, all lease information disclosed is related to operating leases.

The components of balance sheet information related to leases were as follows:


	As of September 30,
	2019
Assets
Operating lease assets	$	103,286

Liabilities
Current operating leases		33,761
Noncurrent operating leases		82,012
Total operating lease liabilities	$	115,773

The components of lease expense were as follows:


	Three months ended ‎September 30,		Nine months ended September 30,
	2019		2019
Lease Expense (a)
Operating lease expense	$	12,728	$	35,181
Sublease income		-		(6)
Net lease expense	$	12,728	$	35,175

(a)Includes short-term leases and variable lease costs, which are immaterial. Included in both cost of services provided and goods sold and selling, general and administrative expenses.

The components of cash flow information related to leases were as follows:


	Three months ended ‎September 30,		Nine months ended September 30,
	2019		2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from leases	$	10,605	$	30,237

Leased assets obtained in exchange for new operating lease liabilities	$	22,946	$	38,890


Weighted Average Remaining Lease Term
Operating leases	4.63	years


Weighted Average Discount Rate
Operating leases	3.38	%


Maturity of Operating Lease Liabilities (in thousands)

2019	$	37,852
2020		28,242
2021		21,181
2022		13,976
2023		9,642
Thereafter		15,125
Total lease payments	$	126,018
Less: interest		(9,381)
Less: future lease obligations not yet commenced		(864)
Total liability recognized on the balance sheet	$	115,773

The following is a summary of future minimum rental payments under operating leases that have initial noncancelable terms in excess of one year at December 31, 2018:


Maturity of Operating Lease Liabilities (in thousands)

2019	$	26,791
2020		24,152
2021		19,669
2022		13,851
2023		8,179
Thereafter		10,974
Total lease payments	$	103,616

For leases commencing prior to 2019, minimum rental payments exclude payments to landlords for real estate taxes and common area maintenance. Operating lease payments include $2.3 million related to extended lease terms that are reasonably certain of being exercised and exclude $864,000 lease payments for leases signed but not yet commenced.