Commitments and Contingencies

9 Months Ended

Sep. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

The Company is subject, from time to time, to various types of third-party legal claims or litigation that arises in the ordinary course of business, including, but not limited to, property loss claims, personal injury or other damages resulting from contact with the Company’s properties. These claims and lawsuits and any resulting damages are generally covered by the Company's insurance policies. The Company accrues for legal costs associated with loss contingencies when these costs are probable and reasonably estimable. While the resolution of these matters cannot be predicted with certainty, management does not expect, based on currently available information, that the final outcome of any pending claims or legal proceedings will have a material adverse effect on the financial condition, results of operations or cash flows of the Company.

University House Communities Group, Inc., Indemnity Claims

The Company received an indemnity notice from UHC Acquisition Sub LLC ("UHC") regarding certain matters under the Stock Purchase Agreement, dated January 3, 2016, for University House Communities Group, Inc., which was sold in June 2016. The notice sets forth various items for which UHC believes they are entitled to indemnification from the Company. In the normal course of property dispositions, pursuant to the purchase and sale agreements, certain indemnification claims can be made against the Company by the purchaser, and the Company will continue to adjust the financial statements, as necessary, based on those claims. Based on the facts and circumstances of the indemnification claims made, guidance provided by third-party specialists and external counsel, and management’s ongoing assessment of the UHC claims, in 2017 the Company accrued a potential loss contingency representing their best estimate of the potential loss related to these claims. Since 2017, the Company has increased the accrual, when appropriate, based on changes to those facts and circumstances of the indemnification claims made, guidance provided by third-party specialists and external counsel, and management’s ongoing assessment of the UHC claims. On June 14, 2019, UHC and the Company, through various negotiations, reached a final settlement for the claims in the amount of $30,000, which was paid by the Company on June 24, 2019. During the nine months ended September 30, 2019, the Company recognized losses from discontinued operations of $25,500 related to these claims.

Operating and Finance Lease Commitments

The Company has non-cancelable contracts of property improvements that have been deemed to contain finance leases that, prior to the adoption of Topic 842, were previously classified as capital leases. In addition, the Company has non-cancelable operating leases for office space used in its business and upon the adoption of Topic 842, the Company recognized operating lease right-of-use ("ROU") assets of $2,890 and lease liabilities of $3,114.

In conjunction with the adoption of Topic 842, the Company elected the following practical expedients and accounting policies:


•	to combine the lease and non-lease components related to the leases described above and apply Topic 842 to the combined component;


•	to utilize a portfolio approach for determining a discount rate for groups of leases which are similar in nature and have similar contract provisions;


•	to not recognize assets and liabilities related to leases with terms of 12 months or less and which otherwise qualify as short-term leases; and


•	to exclude variable lease payments from initial recognition of the lease liabilities and all lease options from the determination of minimum lease terms.

The following table reflects the Company's operating, finance and capital lease arrangements:



	As of
	September 30, 2019			December 31, 2018
Operating lease ROU assets (a)	$	2,493		$	—
Operating lease ROU accumulated amortization (a)	$	(407	)	$	—
Operating lease liabilities (b)	$	2,290		$	—

Finance lease ROU assets (c)	$	1,925		$	—
Finance lease ROU accumulated amortization (d)	$	(195	)	$	—
Finance lease liabilities (b)	$	1,310		$	—

Capital lease assets (c)	$	—		$	2,097
Capital lease accumulated amortization (d)	$	—		$	(104	)
Capital lease liabilities (b)	$	—		$	1,789


(a)	Recognized as a part of deferred costs and other assets, net on the condensed consolidated balance sheets.


(b)	Recognized as a part of other liabilities on the condensed consolidated balance sheets.


(c)	Recognized as a part of building and other improvements on the condensed consolidated balance sheets.


(d)	Recognized as a part of accumulated depreciation on the condensed consolidated balance sheets.

The following table reflects the Company's total lease cost, weighted-average lease terms and weighted-average discount rates for the three and nine months ended September 30, 2019:



	Three months ended September 30, 2019		Nine months ended September 30, 2019
Minimum operating lease payments (a)	$	166	$	506
Variable operating lease payments (a)	30		92
Short-term operating lease payments (a)	84		228
ROU amortization of finance leases (b)	34		104
Interest expense of finance leases (c)	15		46
Total lease cost	$	329	$	976


Weighted-average remaining lease term of operating leases			4.9 years
Weighted-average remaining lease term of finance leases			2.9 years
Weighted-average discount rate of operating leases			4.44		%
Weighted-average discount rate of finance leases			3.50		%


(a)	Recognized as a part of general and administrative expenses on the condensed consolidated statements of operations and comprehensive income.


(b)	Recognized as a part of depreciation and amortization on the condensed consolidated statements of operations and comprehensive income.


(c)	Recognized as a part of interest expense, net, on the condensed consolidated statements of operations and comprehensive income.

Future minimum lease obligations as of September 30, 2019, were as follows:



	Future Minimum Lease Payments
	Operating Leases			Finance Leases
Remaining 2019	$	125		$	150
2020	587			493
2021	471			480
2022	443			279
2023	455			21
Thereafter	470			—
Total expected minimum lease obligation	2,551			1,423
Less: Amount representing interest (a)	(261		)	(113		)
Present value of net minimum lease payments	$	2,290		$	1,310


(a)	Interest includes the amount necessary to reduce the total expected minimum lease obligations to present value calculated at the Company's incremental borrowing rate.

Future minimum lease obligations as of December 31, 2018, were as follows:



	Future Minimum Lease Payments
	Operating Leases		Capital Leases
2019	$	717	$	532
2020	611		532
2021	494		519
2022	466		317
2023	479		40
Thereafter	1,041		—
Total expected minimum lease obligation	$	3,808	1,940
Less: Amount representing interest (a)			(151		)
Present value of net minimum lease payments			$	1,789

(a)

Interest includes the amount necessary to reduce the total expected minimum lease obligations to present value calculated at the Company's incremental borrowing rate.