LEASES

12 Months Ended

Dec. 31, 2020

Operating Leases

The Company is committed under various operating lease agreements primarily related to submerged tidelands, property and equipment. Additionally, certain of the Company’s subsidiaries lease office space, parking space, memorabilia and equipment under agreements classified as operating leases that expire on various dates through 2027.

Hard Rock Biloxi has an agreement with the State of Mississippi for the lease and use of approximately five acres of submerged tidelands for a primary term of thirty years, expiring September 30, 2037. Upon expiration of the primary term, Hard Rock Biloxi will have an option to extend the lease for a renewal term of thirty years; the renewal option has not been included in the calculation of the lease liability or right of use asset as the Company is not reasonably certain to exercise the option. Annual rent for the lease, as of December 31, 2020, is approximately $1.2 million and adjusts annually by the increase in the consumer price index (“CPI”). Future changes to the CPI are treated as variable lease payments and are recognized in the period in which the obligation for those payments is incurred.

Hard Rock Biloxi also has a Lease and Air Space agreement with the City of Biloxi. The agreement grants the Company rights to a parking area, and to the airspace above two defined parcels of land along with certain support structure rights for the construction of a parking garage. The arrangement has a 40-year term expiring November 18, 2043 with one 25-year renewal option at the Company’s option; the renewal option has not been included in the calculation of the lease liability or right of use asset as the Company is not reasonably certain to exercise the option. Monthly rent escalates every 5 years based on CPI, and we are responsible for property taxes. Future changes to the CPI are treated as variable lease payments and are recognized in the period in which the obligation for those payments is incurred.

In connection with the acquisition of Casino KC, the Company is party to a sublease with the Port Authority of Kansas City, Missouri, which has leased the property from the City of Kansas City. Our sublease expires on October 18, 2021, but on that date will automatically renew for five additional periods of five years each. The lease agreement provides for minimum annual rent paid in advance and subject to increases in the CPI every five years. Current minimum annual rent payments are $3.1 million per year. In addition, the agreement calls for quarterly percentage rent payments equal to 3.25% of gross revenues, less the minimum annual rent payment. Casino KC is obligated to operate Casino KC at all times. If Casino KC fails to do so, it must pay the Port Authority, in lieu of percentage rent, a sum equal to 50% of the then-applicable base rent during the time Casino KC is not operating.

In connection with the acquisition of Shreveport, the Company is party to a ground lease with the City of Shreveport, Louisiana. The Company’s initial lease will expire on November 30, 2021, but as of that date the Company can renew for five additional periods of five years each. The renewal options have been included in the measurement of the lease liability as the Company has determined it is reasonably certain of exercising the options. The lease agreement provides for minimum annual rent, subject to 15% increases with each renewal term. In addition, the agreement calls for monthly percentage rent of 1.0% of adjusted gross revenues, subject to an annual minimum of $0.5 million.

During the year ended December 31, 2020, three equipment leases were terminated via purchase of the underlying assets.

At December 31, 2020, the Company had operating lease liabilities of $63.5 million and right of use assets of $36.1 million, which were included in the consolidated balance sheets.

The Company’s total lease cost under ASC 842 for the years ended December 31, 2020 and 2019 is as follows:


	Year Ended December 31,
(in thousands)	2020		2019
Operating leases:
Operating lease cost	$	3,256	$	2,430
Variable lease cost	56		66
Operating lease expense	3,312		2,496
Short-term lease expense	2,158		1,830
Total lease expense	$	5,470	$	4,326

Rent expense for the year ended December 31, 2018 was determined under ASC 840, which excludes variable lease cost and was $2.0 million.

Supplemental cash flow and other information for the year ended December 31, 2020 and 2019, related to operating leases is as follows:


	Year Ended December 31,
($ in thousands)	2020			2019
Cash paid for amounts included in the lease liability - operating cash flows from operating leases	$	5,235		$	2,440
Right of use assets obtained in exchange for operating lease liabilities	$	9,376		$	18,771

Weighted average remaining lease term	24.3 years			16.7 years
Weighted average discount rate	7.3		%	6.8		%

As of December 31, 2020, future minimum rental commitments under noncancelable operating leases are as follows:


	2020
(in thousands)
2021	$	6,204
2022	5,960
2023	5,917
2024	5,866
2025	5,633
Thereafter	109,713
Total	139,293
Less: present value discount	(75,748)
Operating lease obligations	$	63,545

Future operating lease payments as shown above include $108.1 million related to extension options that are reasonably certain of being exercised.

The Company also has leasing arrangements with third-party lessees at its properties. Leasing arrangements for which the Company acts as a lessor are not deemed material as of December 31, 2020.