LEASES

Leases as Lessor

We lease revenue earning equipment to customers for periods ranging from three to seven years for trucks and tractors and up to ten years for trailers. We also rent revenue earning equipment to customers on a short-term basis, one day up to one year in length. From time to time, we may also lease facilities to third parties. The majority of our leases are classified as operating leases. However, some of our revenue earning equipment leases are classified as direct financing leases and, to a lesser extent, sales-type leases. The net investment in direct financing and sales-type leases consisted of:



	December 31,
	2018			2017
	(In thousands)
Total minimum lease payments receivable	$	715,165		713,857
Less: Executory costs	(206,181		)	(216,754	)
Minimum lease payments receivable	508,984			497,103
Less: Allowance for uncollectibles	(475		)	(327	)
Net minimum lease payments receivable	508,509			496,776
Unguaranteed residuals	41,044			41,937
Less: Unearned income	(89,884		)	(91,870	)
Net investment in direct financing and sales-type leases	459,669			446,843
Current portion	(83,962		)	(81,996	)
Non-current portion	$	375,707		364,847

Our direct financing lease customers operate in a wide variety of industries, and we have no significant customer concentrations in any one industry. We assess credit risk for all of our customers including those who lease equipment under direct financing leases. Credit risk is assessed using an internally developed model, which incorporates credit scores from third party providers and our own custom risk ratings and is updated on a monthly basis. The external credit scores are developed based on the customer’s historical payment patterns and an overall assessment of the likelihood of delinquent payments. Our internal ratings are weighted based on the industry that the customer operates in, company size, years in business and other credit-related indicators (i.e., profitability, cash flow, liquidity, tangible net worth, etc.). Any one of the following factors may result in a customer being classified as high risk: i) history of late payments; ii) open lawsuits, liens or judgments; iii) in business less than three years; and iv) operates in an industry with low barriers to entry. For those customers who are designated as high risk, we typically require deposits to be paid in advance in order to mitigate our credit risk. Additionally, our receivables are collateralized by the vehicle’s fair value, which further mitigates our credit risk.

The following table presents the credit risk profile by creditworthiness category of our direct financing lease receivables at December 31, 2018 and 2017:



	December 31,
	2018		2017
	(In thousands)
Very low risk to low risk	$	194,383	201,434
Moderate	220,560		198,464
Moderately high to high risk	94,041		97,205
	$	508,984	497,103

As of December 31, 2018 and 2017, the amount of direct financing lease receivables that were past due was not significant and there were no impaired receivables. Accordingly, there was no material risk of default with respect to these receivables.

Leases as Lessee

We lease facilities and office equipment. None of our leasing arrangements contain restrictive financial covenants.

During 2018, 2017 and 2016, rent expense (including rent of facilities and contingent rentals) was $141 million, $130 million and $127 million, respectively.

Lease Payments

Future minimum payments for leases in effect at December 31, 2018 were as follows:



	As Lessor ⁽¹⁾			As Lessee
	Operating Leases		Direct Financing and Sales-Type Leases	Operating Leases
	(In thousands)
2019	$	1,192,786	115,075	94,697
2020	919,089		117,717	66,420
2021	673,875		96,879	43,985
2022	438,477		70,520	29,797
2023	262,677		44,437	13,701
Thereafter	231,963		64,356	29,216
Total	$	3,718,867	508,984	277,816

____________________

(1)

Amounts do not include contingent rentals, which may be received under certain leases on the basis of miles or changes in the Consumer Price Index. Contingent rentals from operating leases included in revenue were $377 million in 2018, $357 million in 2017 and $342 million in 2016. Contingent rentals from direct financing leases included in revenue were $18 million in 2018, $15 million in 2017 and $12 million in 2016 .

The amounts in the previous table related to the lease of revenue earning equipment are based upon the general assumption that revenue earning equipment will remain on lease for the length of time specified by the respective lease agreements. The future minimum payments presented above related to the lease of revenue earning equipment are not a projection of future lease revenue or expense, and no effect has been given to renewals, new business, cancellations, contingent rentals or future rate changes.