3. LEASES

Effective February 4, 2019, the Company adopted ASC 842, which resulted in a recognition of right-of-use asset (“ROU asset”) and lease liabilities related to leases on the Company’s consolidated balance sheets. The Company determines if an arrangement is, or contains, a lease at inception. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities reflect the obligation to make lease payments arising from the lease. At any given time during the lease term, the lease liability represents the present value of the remaining lease payments and the ROU asset is measured at the amount of the lease liability, adjusted for pre-paid rent, unamortized initial direct costs and the remaining balance of lease incentives received. Both the lease ROU asset and liability are reduced to zero at the end of the lease.

The Company leases retail space under non-cancelable lease agreements, which expire on various dates through 2036. Substantially all of these arrangements are store leases. Store leases generally have initial lease terms ranging from five to fifteen years with renewal options and rent escalation provisions. At the commencement of a lease, the Company includes only the initial lease term as the option to extend is not reasonably certain. The Company does not record leases with a lease term of 12 months or less on the Company’s consolidated balance sheets.

When calculating the lease liability on a discounted basis, the Company applies its estimated discount. The Company bases this discount on a collateralized interest rate as well as publicly available data for instruments with similar characteristics.

The Company’s building and property leases often contain lease and non-lease components. The Company has elected to account for these lease and non-lease components separately. Non-lease components for these assets are primarily comprised of real estate taxes, insurance costs, common area maintenance, and utilities that are passed on from the lessor in proportion to the space leased by the Company, and are recognized in the period in which the obligation for those payments was incurred. Non-lease components are separate from lease components within our lease agreements, such that an allocation between the components does not need to be performed. Lease cost for leases is recognized on a straight-line basis over the lease term.

In addition to rent payments, leases for retail space contain payments for real estate taxes, insurance costs, common area maintenance, and utilities that are not fixed. The Company accounts for these costs as variable payments and does not include such costs as a lease component.

The expense components of the Company’s leases reflected on the Company’s consolidated statement of operations were as follows:


	Consolidated Statement of Operations	February 2, 2020
(in thousands)
Finance lease
Amortization of right-of-use assets	Selling, general and administrative expenses	$	1,362
Interest on lease liabilities	Interest expense		1,230
Total finance lease expense		$	2,592
Operating lease expense	Selling, general and administrative expenses	$	15,636
Amortization of build-to-suit leases capital contribution	Selling, general and administrative expenses		1,129
Variable lease expense	Selling, general and administrative expenses		7,347
Total lease expense		$	26,704

Other information related to leases were as follows:



	February 2, 2020
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Financing cash flows from finance leases	$	891
Operating cash flows from finance leases	$	1,230
Operating cash flows from operating leases	$	13,621

Right-of-use assets obtained in exchange for lease liabilities:
Finance leases	$	41,566
Operating leases	$	17,629

Weighted-average remaining lease term (in years):
Finance leases		15
Operating leases		10

Weighted-average discount rate:
Finance leases		4.5%
Operating leases		4.3%

Future minimum lease payments under the non-cancellable leases are as follows as of February 2, 2020:



		Finance	Operating
Fiscal year		Leases	Leases
(in thousands)
2020	$	3,311	$	15,380
2021		3,311		14,948
2022		3,311		15,145
2023		3,333		15,334
2024		3,511		14,257
Thereafter		37,207		69,669
Total future minimum lease payments	$	53,984	$	144,733
Less - Discount		14,950		27,939
Lease liability	$	39,034	$	116,794

Prior to the adoption of Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASC 842”), the minimum lease payments under non-cancellable operating leases were as follows as of February 3, 2019:


	Operating Leases
	Related
Fiscal year	party		Other		Total
(in thousands)
2019	$	147	$	15,598	$	15,745
2020		144		16,013		16,157
2021		147		15,327		15,474
2022		149		15,444		15,593
2023		136		15,648		15,784
Thereafter		—		112,098		112,098
Total future minimum lease payments	$	723	$	190,128	$	190,851

Total rent expense under non-cancellable leases was $16.2 million, $8.4 million and $5.5 million for fiscal 2019, fiscal 2018 and fiscal 2017, respectively.