Leases

On January 1, 2019, we adopted ASC 842 on a modified retrospective basis. We elected the practical expedients which allowed us to apply the new guidance at its effective date on January 1, 2019 without adjusting the comparative prior period financial statements. The package of practical expedients also allowed us to carry forward the historical lease classification. Additionally, we elected the practical expedients allowing us not to separate lease and non-lease components and not record leases with an initial term of twelve months or less (“short-term leases”) on the balance sheet across all existing asset classes.

The adoption of this standard has resulted in the recognition of operating lease ROU assets and lease liabilities primarily related to our ground lease arrangements for which we are the lessee. As of January 1, 2019, we recorded operating lease liabilities of $60.6 million as well as a corresponding operating lease ROU asset of $82.5 million, which includes, among other things, the reclassified intangible assets of $22.3 million. The standard did not have a material impact on our condensed consolidated statements of operations and statements of cash flows.

The majority of our leases are operating ground leases. We also have operating equipment leases, such as copier and vehicle leases, at our hotel properties. Some leases include one or more options to renew, with renewal terms that can extend the lease term from one to 50 years. The exercise of lease renewal options is at our sole discretion. Some leases have variable payments, however, if variable payments are contingent, they are not included in the ROU assets and liabilities. We have no finance leases as of June 30, 2019.

As of June 30, 2019, our leased assets and liabilities consisted of the following (in thousands):



	June 30, 2019
Assets
Operating lease right-of-use assets	$	82,353
Liabilities
Operating lease liabilities	$	60,779

We incurred the following lease costs related to our operating leases (in thousands):



		Three Months Ended		Six Months Ended
	Classification	June 30, 2019		June 30, 2019
Operating lease cost ⁽¹⁾	Hotel operating expenses - other	$	1,419	$	2,802

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⁽¹⁾Includes approximately $371,000 and $694,000 of variable lease cost associated with the ground leases for the three and six months ended June 30, 2019, respectively. This also includes $118,000 and $237,000 of amortization costs related to the intangible assets that was reclassified upon adoption of ASC 842 for the three and six months ended June 30, 2019, respectively. Short-term lease costs in aggregate are immaterial.

Other information related to leases is as follows:



	Six Months Ended June 30,
	2019
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases (in thousands)	$	1,596
Weighted Average Remaining Lease Term
Operating leases ⁽¹⁾	47 years
Weighted Average Discount Rate
Operating leases ⁽¹⁾	4.96		%

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⁽¹⁾Calculated using the lease term, excluding extension options, and discount rates of the ground leases.

Future minimum lease payments due under non-cancellable leases as of June 30, 2019 were as follows (in thousands):



	Operating Leases
2019	$	1,596
2020	3,208
2021	3,220
2022	3,189
2023	3,191
Thereafter	150,980
Total future minimum lease payments	165,384
Less: interest	(104,605		)
Present value of lease liabilities	$	60,779

Future minimum lease payments due under non-cancellable leases under ASC 840 as of December 31, 2018 were as follows (in thousands):



2019	$	3,161
2020	3,156
2021	3,152
2022	3,164
2023	3,177
Thereafter	151,244
Total	$	167,054

Enhanced Return Funding Program

We lease certain assets from Ashford Inc. under the Enhanced Return Funding Program. See note 18.