Ameresco, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Leases

Leases

3 Months Ended

Mar. 31, 2019

LEASES

On January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842), using the modified retrospective approach. The Company elected the package of practical expedients available in the standard and as a result, did not reassess the lease classification of existing contracts or leases or the initial direct costs associated with existing leases. The Company did not elect the hindsight practical expedient, and evaluated lease terms for existing leases. The Company has also elected the practical expedient to not separate lease components and non-lease components and will account for the leases as a single lease components for all classes of leases.

As a result of the adoption of ASC 842, the Company recognized an increase in lease right-of-use assets of $31,639, current portions of operating lease right-of-use liabilities of $5,084 and an increase to long-term portions of operating lease liabilities of $28,480. There was no impact to the condensed consolidated statements of income or retained earnings for the adoption of ASC 842. No impairment was recognized on the right-of-use asset upon adoption. These adjustments are detailed as follows:



	As of January 1, 2019
	As Reported		842 Adjustment		Adjusted Balances
Operating Leases:
Operating lease right-of-use asset	$	—	$	31,639	$	31,639
Current portions of operating lease right-of-use liabilities	—		5,084		5,084
Long-term portions of operating lease liabilities	—		28,480		28,480
Total operating lease liabilities	$	—	$	33,564	$	33,564
Weighted-average remaining lease term					10 years
Weighted-average discount rate					6.0		%

Financing Leases:
Energy assets, net	$	38,263	$	—	$	38,263
Current portions of long-term debt and financing lease liabilities	4,956		—		4,956
Long-term debt and financing lease liabilities, less current portions and net of deferred financing fees	28,407		—		28,407
Total financing lease liabilities	$	33,363	$	—	$	33,363
Weighted-average remaining lease term					18 years
Weighted-average discount rate					11.7		%

The Company enters into a variety of operating lease agreements through the normal course of its business including certain administrative offices. The leases are long-term non-concealable real estate lease agreements, expiring at various dates through fiscal 2025. The agreements generally provide for fixed minimum rental payments and the payment of utilities, real estate taxes, insurance and repairs. The Company also leases certain land parcels related to our energy projects. The office and land leases make up a significant portion of the Company’s operating lease activity. Many of these leases have one or more renewal options that allow the Company, at it’s discretion, to renew the lease for six months to seven years. Only renewal options that the Company believed were likely to be exercised were included in our lease calculations. Many land leases include minimum lease payments that increase when the related project become operational. In these cases, the commercial operation date was estimated by the Company and used to calculate the estimated minimum lease payments.

The Company also enters into leases for IT equipment and service agreements, automobiles, and other leases related to our construction projects such as equipment, mobile trailers and other temporary structures. These leases are either short-term in nature or immaterial. The Company will utilize the portfolio approach.

A portion of the Company’s real estate leases are generally subject to annual changes in the Consumer Price Index (“CPI”). The Company utilized each lease’s minimum lease payments to calculate the lease balances upon transition. The subsequent increases in rent based on changes in CPI were excluded and will be excluded for future leases from the calculation of the lease balances, but will be recorded to the condensed consolidated statement of income as part of our operating lease costs.

The Company has elected the practical expedient to not separate lease and non-lease components for existing leases for real-estate and land leases. Going forward if a lease has non-lease components the Company will allocate consideration based on price information in the agreement or, if this information is not available, the Company will make a good faith estimate based on available pricing information at the time.

The discount rate was calculated using an incremental borrowing rate based on an assessment prepared by the Company based on financing rates on secured comparable notes with comparable terms and a synthetic credit rating calculated by a third party. The Company elected to apply the discount rate using the remaining lease term at the date of adoption.

The Company has a number of leases that are classified as financing leases, which relate to transactions that are considered sale-leasebacks under ASC 840. Under ASC 842, these will be considered failed sale-leasebacks and will not qualify as sales. See Note 2 sale-leaseback section and Note 6 for additional information on the Company’s financing leases.

Supplemental balance sheet information related to leases at March 31, 2019 are as follows:



	March 31, 2019
Operating Leases:
Operating lease assets	$	30,350
Current operating lease liabilities	5,082
Long-term portions of operating lease liabilities	27,305
Total operating lease liabilities	$	32,387
Weighted-average remaining lease term	10 years
Weighted-average discount rate	6.1		%

Financing Leases:
Energy assets, net	$	37,731
Current portions of long-term debt and financing lease liabilities	4,958
Long-term debt and financing lease liabilities, less current portions and net of deferred financing fees	28,379
Total financing lease liability	$	33,337
Weighted-average remaining lease term	18 years
Weighted-average discount rate	11.7		%

The costs related to our leases for the three months ended March 31, 2019 are as follows:



	March 31, 2019
Operating Lease:
Operating lease costs	$	1,838
Short-term lease costs	39

Financing Lease:
Amortization expense	532
Interest on lease liabilities	949

Total lease costs	$	3,358

The Company’s estimated minimum future lease obligations under our leases are as follows:



	Operating Leases		Financing Leases
Year ended December 31,
2019	$	5,218	$	8,343
2020	6,476		7,881
2021	5,403		6,775
2022	4,938		5,173
2023	3,711		3,686
Thereafter	18,895		26,800
Total minimum lease payments	$	44,641	$	58,658
Less: interest	12,254		25,321
Present value of lease liabilities	$	32,387	$	33,337

The Company has determined that certain power purchase agreements contain a lease component in accordance with ASC 840, Leases. The Company recognized $2,224 of operating lease revenue under these agreements during the three months ended March 31, 2019, which was reflected in revenues on the condensed consolidated statements of income.

As of May 2, 2019, the Company has signed one land lease with estimated undiscounted total lease payments of $535 going out to 2043 that are not reflected in the above lease disclosures.