Leases Leases (Notes)

6 Months Ended

Jun. 30, 2020

Leases We lease space for all of our Rent-A-Center Business and Mexico stores under operating leases expiring at various times through 2027. In addition, we lease space for certain support facilities under operating leases expiring at various times through 2032. Most of our store leases are five-year leases and contain renewal options for additional periods ranging from three to five years at rental rates adjusted according to agreed formulas. We evaluate all leases to determine if it is likely that we will exercise future renewal options and in most cases we are not reasonably certain of exercise due to competing market rental rates

and lack of significant penalty or business disruption incurred by not exercising the renewal options. We include month-to-month leases in operating lease right-of-use assets and operating lease liabilities in our condensed consolidated balance sheet. In certain situations involving the sale of a Rent-A-Center Business corporate store to a franchisee, we enter into lease a assignment agreement with the buyer, but we remain the primary obligor under the original lease for the remaining active term. These assignments are therefore classified as subleases and the original lease is included in our operating lease right-of-use assets and operating lease liabilities in our condensed consolidated balance sheet.

We lease vehicles for all of our Rent-A-Center Business stores under operating leases with lease terms expiring twelve months after the start date of the lease. We classify these leases as short-term and have elected the short-term lease exemption for our vehicle leases, and have therefore excluded them from our operating lease right-of-use assets within our condensed consolidated balance sheet. We also lease vehicles for all of our Mexico stores which have terms expiring at various times through 2022 with rental rates adjusted periodically for inflation. Finally, we have a minimal number of equipment leases, primarily related to temporary storage and certain back office technology hardware assets.

For all of the leases described above, we have elected not to separate the lease and non-lease components and account for these as a single component. We have also elected to use the practical expedients that remove the requirement to reassess whether expired or existing contracts contain leases and the requirement to reassess the lease classification for any existing leases prior to our adoption of ASU 2016-02.

Operating lease right-of-use assets and operating lease liabilities are discounted using our incremental borrowing rate, since the implicit rate is not readily determinable. We do not currently have any financing leases.

Operating lease costs are recorded on a straight-line basis within other store expenses in our condensed consolidated statements of operations.

Total operating lease costs by expense type:


	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
(in thousands)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Operating lease cost included in other store expenses⁽¹⁾	$	34,438	$	38,232	$	71,877	$	74,785
Operating lease cost included in other charges	191		5,111		960		7,252
Sublease receipts	(2,144)		(1,818)		(4,461)		(3,494)
Total operating lease charges	$	32,485	$	41,525	$	68,376	$	78,543

⁽¹⁾Includes short-term lease costs, which are not significant.

Supplemental cash flow information related to leases:


	Six Months Ended		Six Months Ended
(in thousands)	June 30, 2020		June 30, 2019
Cash paid for amounts included in measurement of operating lease liabilities	$	57,639	$	61,333
Cash paid for short-term operating leases not included in operating lease liabilities	12,071		14,451
Right-of-use assets obtained in exchange for new operating lease liabilities	47,285		10,540

Weighted-average discount rate and weighted-average remaining lease term:


(in thousands)	June 30, 2020		December 31, 2019
Weighted-average discount rate⁽¹⁾	7.3	%	7.7	%
Weighted-average remaining lease term (in years)	4		4

⁽¹⁾January 1, 2019 incremental borrowing rate was used for leases in existence at the time of adoption of ASU 2016-02.

Reconciliation of undiscounted operating lease liabilities to the present value operating lease liabilities at June 30, 2020:


(In thousands)	Operating Leases
2020	$	67,972
2021	95,500
2022	67,476
2023	42,722
2024	26,790
Thereafter	29,323
Total undiscounted operating lease liabilities	329,783
Less: Interest	(48,439)
Total present value of operating lease liabilities	$	281,344

In response to the COVID-19 pandemic and related government restrictions negatively impacting our operations, we renegotiated certain store lease agreements in the second quarter to obtain rent relief in the near term, in order to help offset the negative financial impacts of COVID-19. As of June 30, 2020, we have renegotiated approximately 500 lease agreements, receiving near term rent abatements of approximately $2.3 million and rent deferrals of approximately $2.2 million. On April 10, 2020, the Financial Accounting Standards Board ("FASB") staff issued a question-and-answer document providing guidance for lease concessions provided to lessees in response to the effects of COVID-19. Such guidance allows lessees to make an election not to evaluate whether a lease concession provided by a lessor should be accounted for as a lease modification in the event the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee. We elected this practical expedient in our accounting for any lease concessions provided in connection with our renegotiated lease agreements that did not result in a substantial increase in the rights of or obligations to the lessor. As a result of this election we recognized rent abatement credits of approximately $0.6 million for the three-months ended June 30, 2020 in our condensed consolidated statement of operations.