Leases

6 Months Ended

Jun. 30, 2019

Leases

Effective January 1, 2019, we adopted the FASB’s guidance addressing the recognition, measurement, presentation and disclosure of leases for both lessees and lessors using the transition method to adopt the new lease standard. See Note 2. New Accounting Standards: Adoption of New Accounting Standards.

Lessee

We generally lease the underlying sites upon which the physical billboard structures on which we display advertising copy for our customers are located. We also have leases for office and warehouse spaces. All leases are recorded on the Consolidated Statement of Financial Position and we recognize lease expense on a straight-line basis over the lease term. We do not separate lease and non-lease components from contracts.

Many of our leases include one or more options to renew, with renewal terms that can extend the lease term for varying lengths of time. These renewal provisions typically require consent of both parties. Many of our leases also contain termination provisions at our option, based on a variety of factors, including termination due to changing economic conditions of the related billboard location.

Certain of our lease agreements include rental payments based on a percentage of revenue over contractual levels and others include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

When available, we use the rate implicit in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement or amendment.

We rent or sublease certain real estate to third parties.

As of June 30, 2019, we have operating lease assets of $1.4 billion, short-term operating lease liabilities of $161.7 million and non-current operating lease liabilities of $1.2 billion.

For the three months ended June 30, 2019, we recorded operating lease costs of $102.6 million in Operating expenses and $2.3 million in Selling, general and administrative expenses. For the three months ended June 30, 2019, these costs include $20.4 million of variable operating lease costs. For the six months ended June 30, 2019, we recorded operating lease costs of $197.0 million in Operating expenses and $4.4 million in Selling, general and administrative expenses. For the six months ended June 30, 2019, these costs include $39.9 million of variable operating lease costs. For the three and six months ended June 30, 2019, sublease income was immaterial.

As of June 30, 2019, minimum rental payments under operating leases are as follows:



(in millions)	Operating Leases
2019	$	110.8
2020	248.7
2021	231.5
2022	214.2
2023	191.9
2024 and thereafter	949.9
Total operating lease payments	1,947.0
Less: Interest	564.0
Present value of lease liabilities	$	1,383.0

As of December 31, 2018, minimum rental payments under non-cancellable operating leases with original terms in excess of one year are as follows:



(in millions)	Non-Cancellable Operating Leases
2019	$	154.8
2020	151.8
2021	139.1
2022	126.2
2023	109.8
2024 and thereafter	574.6
Total minimum payments	$	1,256.3

As of June 30, 2019, the weighted-average remaining lease term was 10.2 years and the weighted-average discount rate was 6.2%.

For the six months ended June 30, 2019, cash paid for operating leases was $195.5 million. Leased assets obtained in exchange for new operating lease liabilities was $252.5 million.

Lessor

Our agreements with customers to advertise on our billboards are considered operating leases. Substantially all of our advertising structures (see Note 5. Property and Equipment) are utilized in the sale of advertising to customers, for which the contracts are accounted for as rental income. Billboard display revenues are recognized as rental income on a straight-line basis over the customer lease term. We exclude from rental income all taxes assessed by a governmental authority that we collect from customers. These operating leases are short-term in duration, typically a term of 4 weeks to one year. Our leases do not include any variable lease provisions or options to extend the lease. Certain contracts may include provisions for the early termination of the lease after an agreed upon notice period. We account for non-lease installation services and the lease associated with providing advertising space on our billboards as a combined component under the lease standard.

We recorded rental income of $296.1 million for the three months ended June 30, 2019, and $538.1 million for the six months ended June 30, 2019, in Revenues on our Consolidated Statement of Operations.

As of June 30, 2019, rental payments to be received under non-cancellable operating leases are as follows:



(in millions)	Rental Income
2019	$	347.0
2020	121.5
2021	19.4
2022	5.4
2023	2.9
2024 and thereafter	1.8
Total minimum payments	$	498.0