Leases (Notes)

6 Months Ended

Jun. 30, 2021

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 a lease 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 2025 with rental rates adjusted periodically for inflation. Finally, we have a minimal number of equipment leases, primarily related to temporary storage containers 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 instead account for these as a single component. In addition, we have elected to use available practical expedients that eliminate the requirement

to reassess whether expired or existing contracts contained leases and the requirement to reassess the lease classification for any existing leases prior to our adoption of ASU 2016-02 on January 1, 2019.

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				Six Months Ended
(in thousands)	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Operating lease cost included in Other store expenses(1)(2)	$	34,690	$	34,438	$	68,826	$	71,877
Operating lease cost included in Other charges(2)	78		191		244		960
Sublease receipts	(3,134)		(2,144)		(6,483)		(4,461)
Total operating lease charges	$	31,634	$	32,485	$	62,587	$	68,376

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

(2) Excludes variable lease costs of $8.4 million and $16.9 million for the three and six months ended June 30, 2021 compared to $8.5 million and $17.4 million for the three and six months ended June 30, 2020.

Supplemental cash flow information related to leases:


	Six Months Ended
(in thousands)	June 30, 2021		June 30, 2020
Cash paid for amounts included in measurement of operating lease liabilities	$	53,758	$	57,639
Cash paid for short-term operating leases not included in operating lease liabilities	9,373		12,071
Right-of-use assets obtained in exchange for new operating lease liabilities	61,824		47,285

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


(in thousands)	June 30, 2021		December 31, 2020
Weighted-average discount rate(1)	6.3	%	6.8	%
Weighted-average remaining lease term (in years)	4		4

(1) The 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, 2021:


(In thousands)	Operating Leases
2021	$	57,007
2022	97,059
2023	70,526
2024	52,213
2025	35,737
Thereafter	26,077
Total undiscounted operating lease liabilities	338,619
Less: Interest	(39,082)
Total present value of operating lease liabilities	$	299,537

In response to the COVID-19 pandemic and related government restrictions negatively impacting our operations, we renegotiated approximately 500 store lease agreements in the second quarter of 2020 to obtain rent relief, in order to help offset the negative financial impacts of COVID-19. Lease amendments executed as a result of our renegotiations included near term rent abatements of approximately $2.3 million and rent deferrals of approximately $2.1 million. As of June 30, 2021, remaining unpaid deferred rent associated with these lease amendments was approximately $0.2 million, the majority of which will be repaid in 2021.