Leases

12 Months Ended

Dec. 31, 2019

The Company leases substantially all of its U.S. dialysis facilities. The majority of the Company’s facilities are leased under non-cancellable operating leases ranging in terms from five years to 15 years and which contain renewal options of five years to ten years at the fair rental value at the time of renewal. These renewal options are included in the Company’s determination of the right-of-use assets and related lease liabilities when renewal is considered reasonably certain at the commencement date. Certain of the Company’s leases are subject to periodic consumer price index increases or contain fixed escalation clauses. The Company also leases certain facilities and equipment under finance leases. The Company has elected the practical expedient to not separate lease components from non-lease components for its financing and operating leases.

Financing and operating right-of-use assets are recognized based on the net present value of lease payments over the lease term at the commencement date. Since most of the Company's leases do not provide an implicit rate of return, the Company uses its incremental borrowing rate based on information available at the commencement date or remeasurement date in determining the present value of lease payments.

As of December 31, 2019 and December 31, 2018, assets recorded under finance leases were $247,246 and $367,164, respectively, and accumulated amortization associated with finance leases was $27,193 and $131,971, respectively, included in property and equipment, net, on the Company's consolidated balance sheet.

In certain markets, the Company acquires and develops dialysis centers. Upon completion, the Company sells the center to a third party and leases the space back with the intent of operating the center on a long term basis. Both the sale and leaseback terms are generally market terms. The lease terms are consistent with the Company's other operating leases with the majority of the leases under non-cancellable operating leases ranging in terms from five years to 15 years and which contain renewal options of five years to ten years at the fair rental value at the time of renewal.

The Company adopted Topic 842, Leases beginning on January 1, 2019 through a modified retrospective approach for leases existing at the adoption date with a cumulative effect adjustment. Consequently, financial information was not updated for dates and periods before January 1, 2019.

The components of lease expense were as follows:



Lease cost	Year ended December 31, 2019
Operating lease cost⁽¹⁾:
Fixed lease expense	$	526,352
Variable lease expense	119,740
Financing lease cost:
Amortization of leased assets	23,724
Interest on lease liabilities	14,932
Net lease cost	$	684,748

(1) Includes short-term lease expense and sublease income, which are immaterial.

Other information related to leases was as follows:



Lease term and discount rate	December 31, 2019
Weighted average remaining lease term (years):
Operating leases	9.0
Finance leases	10.2
Weighted average discount rate:
Operating leases	4.1	%
Finance leases	5.4	%



Other information	Year ended December 31, 2019
Gains on sale leasebacks, net	$	20,833
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	637,655
Operating cash flows for finance leases	$	22,257
Financing cash flows for finance leases	$	25,692
Net operating lease assets obtained in exchange for new or modified operating lease liabilities	$	432,074

Future minimum lease payments under non-cancellable leases as of December 31, 2019 are as follows:



	Operating leases			Finance leases
2020	$	462,131		$	37,624
2021	489,799			33,267
2022	454,753			33,677
2023	409,655			33,825
2024	358,009			33,841
Thereafter	1,510,665			178,434
Total future minimum lease payments	3,685,012			350,668
Less portion representing interest	(617,300		)	(82,134		)
Present value of lease liabilities	$	3,067,712		$	268,534

Rent expense under all operating leases for 2019, 2018, and 2017 was $646,092, $596,117 and $530,748, respectively. Rent expense is recorded on a straight-line basis over the term of the lease, including leases that contain fixed escalation clauses or include abatement provisions. Leasehold improvement incentives are deferred and amortized to rent expense over the term of the lease. Finance lease obligations are included in long-term debt. See Note 13 for further details on long-term debt.