Operating Leases

12 Months Ended

Dec. 31, 2020

Operating Leases

The Company leases certain office space and model homes under operating leases with remaining terms of one to six years. The Company sells model homes to investors with the express purpose of leasing the homes back as sales models for a specified period of time. Under ASC 842, the Company records the sale of the model home and the profit on the sale at the time of the home delivery.

The Company determines if an arrangement is a lease at inception when the arrangement transfers the right to control the use of an identified asset to the Company. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make payments arising from the lease agreement. The Company has operating leases but does not have any material financing leases.

Operating lease ROU assets and operating lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. The lease term includes an option to extend or terminate a lease when it is reasonably certain that the option will be exercised. The exercise of these lease renewal options is generally at our discretion. The operating lease ROU assets include any lease payments made in advance and exclude any lease incentives. Lease payments include both lease and non-lease components as a single lease component. Lease expense is recognized on a straight-line basis over the lease term. The expense recognition pattern for our leases remained substantially unchanged as a result of the adoption of ASC 842. Variable lease payments consist of non-lease services related to the lease. Variable lease payments are excluded from the ROU assets and lease liabilities and are expensed as incurred. Short-term leases include leases with terms of less than one year without renewal options that are reasonably certain to be exercised and are recognized on a straight-line basis over the lease term. Due to our election of the practical expedient, leases with an initial term of twelve months or less are not recorded on the balance sheet. As the rate implicit in our leases is not readily determinable, the Company uses its estimated incremental borrowing rate at the commencement date in determining the present value of the lease payments. We give consideration to our recent debt issuances as well as to the current rate available under our Credit Facility when calculating our incremental borrowing rate. Our lease agreements do not contain any residual value guarantees or material restrictive covenants.

During the twelve months ended December 31, 2020, the Company increased both its operating ROU asset and operating lease liability by $33.9 million and $34.1 million, respectively, as a result of $40.2 million in additional leases and modifications to existing leases throughout the period (primarily due to our new home office headquarters lease which commenced in June 2020), offset partially by $6.3 million of additional ROU asset amortization and $6.1 million of additional periodic lease expense (which is recorded within its Consolidated Statement of Cash Flows in the change in Other Assets and Other Liabilities). As of December 31, 2020, the Company’s ROU asset was $52.3 million and its operating lease liability had a balance of $52.5 million on its Consolidated Balance Sheets. The weighted-average remaining lease term was 13.2 years, and the weighted-average discount rate was 3.9%.

For the twelve months ended December 31, 2020, the Company had the following operating lease expense components:


(Dollars in thousands)

Operating lease expense	$	7,548
Variable lease expense	137
Short-term lease expense	2,686
Total lease expense	$	10,371

The following table presents a maturity analysis of our annual undiscounted cash flows reconciled to the carrying value of our operating lease liabilities as of December 31, 2020:


(Dollars in thousands)


2021	$	8,998
2022	8,212
2023	6,536
2024	4,782
2025	3,287
Thereafter	35,377
Total lease payments	67,192
Less: Imputed interest	(14,718)
Total operating lease liability	$	52,474