Leases

6 Months Ended

Jun. 30, 2022

7. 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 inpatient units (“IPUs”) and/or contract beds within hospitals. Roto-Rooter mainly 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.

Roto-Rooter purchases equipment and leases it to certain of its Independent Contractors. We analyzed these leases in accordance with ASC 842 and determined they are operating leases. As a result, Roto-Rooter will continue to capitalize the equipment underlying these leases, depreciate the equipment and recognize rental income.

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

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


	June 30,		‎December 31,
	2022		2021
Assets
Operating lease assets	$	128,290	$	125,048

Liabilities
Current operating leases		39,062		37,913
Noncurrent operating leases		103,389		100,629
Total operating lease liabilities	$	142,451	$	138,542

The components of lease expense for the second quarter is as follows (in thousands):


	Three months ended June 30,
	2022		2021
Lease Expense (a)
Operating lease expense	$	13,249	$	15,550
Sublease income		(45)		(46)
Net lease expense	$	13,204	$	15,504

The components of lease expense for the first six months is as follows (in thousands):


	Six months ended June 30,
	2022		2021
Lease Expense (a)
Operating lease expense	$	26,300	$	30,911
Sublease income		(91)		(90)
Net lease expense	$	26,209	$	30,821

(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:


	Six months ended June 30,
	2022		2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from leases	$	25,173	$	25,901

Leased assets obtained in exchange for new operating lease liabilities	$	27,589	$	25,685


Weighted Average Remaining Lease Term at June 30, 2022
Operating leases	4.52	years


Weighted Average Discount Rate at June 30, 2022
Operating leases	2.39	%


Maturity of Operating Lease Liabilities (in thousands)

2022	$	23,263
2023		40,947
2024		31,752
2025		24,501
2026		18,212
Thereafter		12,183
Total lease payments	$	150,858
Less: interest		(8,407)
Total liability recognized on the balance sheet	$	142,451

For leases commencing prior to April 2019, minimum rental payments exclude payments to landlords for real estate taxes and common area maintenance. Operating lease payments include $2.7 million related to extended lease terms that are reasonably certain of being exercised and exclude $5.8 million of lease payments for leases signed but not yet commenced.