Leases (Notes)

3 Months Ended

Feb. 29, 2020

Leases

We lease certain property and equipment for use in our operations. We recognize lease expense for these leases generally on a straight-line basis over the lease term and combine lease and non-lease components for all leases. Lease right-of-use assets and lease liabilities are recorded on our consolidated balance sheets for leases with an expected term at the commencement date of more than 12 months. Some of our leases include one or more renewal options, the exercise of which is generally at our discretion. Such options are excluded from our calculations of lease right-of-use assets and lease liabilities until we determine it is reasonably certain the option will be exercised. Lease liabilities are equal to the present value of the remaining lease payments while the amount of lease right-of-use assets is based on the lease liabilities, subject to adjustment, such as for lease incentives. Our leases do not provide a readily determinable implicit interest rate; therefore, we estimate our incremental borrowing rate to calculate the present value of remaining lease payments. In determining our incremental borrowing rate, we considered the lease term, market interest rates, current interest rates on our senior notes and the effects of collateralization. Our lease population at February 29, 2020 was comprised of operating leases where we are the lessee, primarily real estate leases for our corporate office, division offices and design studios, as well as certain equipment leases. Our lease agreements do not contain any residual value guarantees or material restrictive covenants.

Lease expense is included in selling, general and administrative expenses in our consolidated statements of operations and includes costs for leases with terms of more than 12 months as well as short-term leases with terms of 12 months or less. For

the three months ended February 29, 2020, our total lease expense was $5.0 million, which included short-term lease costs of $2.1 million. Variable lease costs and external sublease income for the three months ended February 29, 2020 were immaterial.

The following table presents our lease right-of-use assets and lease liabilities as of February 29, 2020 and other information about our leases for the three months ended February 29, 2020 (dollars in thousands):



Lease right-of-use assets (a)	$	32,388
Lease liabilities (b)	33,918
Lease right-of-use assets obtained in exchange for new lease liabilities	3,640
Non-cash operating lease expense	—
Cash payments on lease liabilities	2,743
Weighted-average remaining lease term	5.0 years
Weighted-average discount rate (incremental borrowing rate)	5.1		%


(a)	Represents lease right-of-use assets of $32.0 million within our homebuilding operations and $.4 million within our financial services operations.


(b)	Represents lease liabilities of $33.5 million within our homebuilding operations and $.4 million within our financial services operations.

As of February 29, 2020, the future minimum lease payments required under our leases are as follows (in thousands):



Years Ending November 30,
2020	$	7,826
2021	8,342
2022	7,058
2023	5,234
2024	4,289
Thereafter	5,875
Total lease payments	38,624
Less: Interest	(4,706		)
Present value of lease liabilities	$	33,918