Ameresco, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Leases

Leases

12 Months Ended

Dec. 31, 2019

LEASES

On January 1, 2019, the Company adopted 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 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 component for all classes of leases.

As a result of the adoption of Topic 842, the Company recognized an increase in lease ROU assets of $31,639, current portions of operating lease ROU liabilities of $5,084 and an increase to long-term portions of operating lease liabilities of $28,480, as of January 1, 2019. There was no net impact to the consolidated statements of income or retained earnings for the adoption of Topic 842. No impairment was recognized on the ROU asset upon adoption. The adoption adjustments for the Company’s outstanding operating and financing leases are detailed as follows:



	As of January 1, 2019
	As Reported		842 Adjustment		Adjusted Balances
Operating Leases:
Operating lease assets	$	—	$	31,639	$	31,639
Current portions of operating lease 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 financing lease liabilities	4,956		—		4,956
Long-term 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 2028. 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, expiring at various dates through fiscal 2045. 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 becomes operational. In these cases, the commercial operation date was estimated by the Company and used to calculate the estimated minimum lease payments. Rent and related expenses for the years ended December 31, 2019, 2018 and 2017 was $8,179, $6,463 and $6,362, respectively.

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. The Company utilizes the portfolio approach for this class of lease. These leases are either short-term in nature or immaterial.

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 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. The Company has historical leases under ASC 840, Leases, which may have lease and non-lease components. Upon adoption of Topic 842, the Company has elected to continue to account for these historical leases as a single component, as permitted by Topic 842. As of January 1, 2019, as it relates to all prospective leases, the Company will allocate consideration to lease and non-lease components based on pricing information in the respective lease agreement, or, if this information is not available, the Company will make a good faith estimate based on the available pricing information at the time of the lease agreement.

The discount rate was calculated using an incremental borrowing rate 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. See the sale-leaseback section below for additional information on the Company’s financing leases.

Supplemental balance sheet information related to leases at December 31, 2019 is as follows:



	December 31, 2019
Operating Leases:
Operating lease assets	$	32,791
Current operating lease liabilities	5,802
Long-term portions of operating lease liabilities	29,101
Total operating lease liabilities	$	34,903
Weighted-average remaining lease term	11 years
Weighted-average discount rate	6.3		%

Financing Leases:
Energy assets, net	$	36,134
Current portions of financing lease liabilities	4,997
Long-term financing lease liabilities, less current portions and net of deferred financing fees	23,500
Total financing lease liabilities	$	28,497
Weighted-average remaining lease term	17 years
Weighted-average discount rate	11.8		%

The costs related to our leases are as follows:



	Year ended December 31, 2019
Operating Lease:
Operating lease costs	$	7,460

Financing Lease:
Amortization expense	2,129
Interest on lease liabilities	3,630

Total lease costs	$	13,219

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



	Operating Leases		Financing Leases
Year ended December 31,
2020	$	7,768	$	8,078
2021	6,340		6,775
2022	5,775		5,173
2023	4,486		3,686
2024	3,668		2,585
Thereafter	21,220		24,215
Total minimum lease payments	$	49,257	$	50,512
Less: interest	14,354		22,015
Present value of lease liabilities	$	34,903	$	28,497

Sale-Leaseback

During the first quarter of 2015, the Company entered into an agreement with an investor which gives the Company the option to sell and contemporaneously lease back solar PV projects. This agreement expired on June 30, 2018. Additionally, the Company sold and contemporaneously leased back one solar PV project to another investor, not a party to the master lease agreement, under a new agreement during the year ended December 31, 2017. During August 2018, the Company entered into an agreement with an investor which gives the Company the option to sell and contemporaneously lease back solar PV projects through August 2019 up to a maximum funding amount of $100,000. During the year ended December 31, 2018, the Company sold and contemporaneously leased back two solar PV projects. See below for a summary of solar PV project sales by fiscal year:



Year Ended	# Solar PV Projects Sold (actual #’s)	Sale Price		Deferred Gain Recorded		Deferred Loss Recorded		Financing Lease Asset/Liability Recorded		Initial Lease Term (years)	Minimum Lease Payment		Maximum Lease Payment
Year-ended December 31, 2017	13	$	51,204	$	4,625	$	1,204	$	22,934	10-20	$	4	$	510
Year-ended December 31, 2018	2	$	5,145	$	574	$	—	$	2,625	20	$	3	$	144

During the year ended December 31, 2019, the Company amended the August 2018 agreement with the investor to extend the end date of the agreement to November 24, 2019. During the year ended December 31, 2019, the Company sold three projects and in return received $13.7 million. In accordance with Topic 842, Leases, the 2019 transactions were accounted for as failed sales as the Company retains control of the underlying assets. The Company recorded the proceeds received from the transactions as long term financing facilities with interest rate ranging from 0% to 0.28%, as a result of tax credits which were transferred to the counterparty. See Note 9 for additional information on these finance facilities. As of December 31, 2019, approximately $81 million remained available under the lending commitment.

In January 2020, the Company amended the August 2018 agreement with the investor to extend the end date of the agreement to November 24, 2020 and increase the maximum funding amount up to $150 million.

A summary of amounts related to sale leasebacks in the Company’s consolidated balance sheets is as follows:



	December 31,		December 31,
	2019		2018
Financing lease assets, net	$	36,134	$	38,263
Deferred loss, short-term, net	115		115
Deferred loss, long-term, net	1,801		1,917
Total deferred loss	$	1,916	$	2,032
Financing lease liabilities, short-term	4,997		4,956
Financing lease liabilities, long-term	23,500		28,407
Total financing lease liabilities	$	28,497	$	33,363
Deferred gain, short-term, net	345		345
Deferred gain, long-term, net	5,463		5,808
Total deferred gain	$	5,808	$	6,153

Upon adoption of Topic 842, the Company elected to take the practical expedient and will not reassess lease classifications at adoption. Accordingly, these sales-leasebacks will remain under the previous guidance.

Leases

LEASES



	As of January 1, 2019
	As Reported		842 Adjustment		Adjusted Balances
Operating Leases:
Operating lease assets	$	—	$	31,639	$	31,639
Current portions of operating lease 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 financing lease liabilities	4,956		—		4,956
Long-term 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		%

Supplemental balance sheet information related to leases at December 31, 2019 is as follows:



	December 31, 2019
Operating Leases:
Operating lease assets	$	32,791
Current operating lease liabilities	5,802
Long-term portions of operating lease liabilities	29,101
Total operating lease liabilities	$	34,903
Weighted-average remaining lease term	11 years
Weighted-average discount rate	6.3		%

Financing Leases:
Energy assets, net	$	36,134
Current portions of financing lease liabilities	4,997
Long-term financing lease liabilities, less current portions and net of deferred financing fees	23,500
Total financing lease liabilities	$	28,497
Weighted-average remaining lease term	17 years
Weighted-average discount rate	11.8		%

The costs related to our leases are as follows:



	Year ended December 31, 2019
Operating Lease:
Operating lease costs	$	7,460

Financing Lease:
Amortization expense	2,129
Interest on lease liabilities	3,630

Total lease costs	$	13,219

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



	Operating Leases		Financing Leases
Year ended December 31,
2020	$	7,768	$	8,078
2021	6,340		6,775
2022	5,775		5,173
2023	4,486		3,686
2024	3,668		2,585
Thereafter	21,220		24,215
Total minimum lease payments	$	49,257	$	50,512
Less: interest	14,354		22,015
Present value of lease liabilities	$	34,903	$	28,497

Sale-Leaseback



Year Ended	# Solar PV Projects Sold (actual #’s)	Sale Price		Deferred Gain Recorded		Deferred Loss Recorded		Financing Lease Asset/Liability Recorded		Initial Lease Term (years)	Minimum Lease Payment		Maximum Lease Payment
Year-ended December 31, 2017	13	$	51,204	$	4,625	$	1,204	$	22,934	10-20	$	4	$	510
Year-ended December 31, 2018	2	$	5,145	$	574	$	—	$	2,625	20	$	3	$	144

A summary of amounts related to sale leasebacks in the Company’s consolidated balance sheets is as follows:



	December 31,		December 31,
	2019		2018
Financing lease assets, net	$	36,134	$	38,263
Deferred loss, short-term, net	115		115
Deferred loss, long-term, net	1,801		1,917
Total deferred loss	$	1,916	$	2,032
Financing lease liabilities, short-term	4,997		4,956
Financing lease liabilities, long-term	23,500		28,407
Total financing lease liabilities	$	28,497	$	33,363
Deferred gain, short-term, net	345		345
Deferred gain, long-term, net	5,463		5,808
Total deferred gain	$	5,808	$	6,153

Leases

LEASES



	As of January 1, 2019
	As Reported		842 Adjustment		Adjusted Balances
Operating Leases:
Operating lease assets	$	—	$	31,639	$	31,639
Current portions of operating lease 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 financing lease liabilities	4,956		—		4,956
Long-term 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		%

Supplemental balance sheet information related to leases at December 31, 2019 is as follows:



	December 31, 2019
Operating Leases:
Operating lease assets	$	32,791
Current operating lease liabilities	5,802
Long-term portions of operating lease liabilities	29,101
Total operating lease liabilities	$	34,903
Weighted-average remaining lease term	11 years
Weighted-average discount rate	6.3		%

Financing Leases:
Energy assets, net	$	36,134
Current portions of financing lease liabilities	4,997
Long-term financing lease liabilities, less current portions and net of deferred financing fees	23,500
Total financing lease liabilities	$	28,497
Weighted-average remaining lease term	17 years
Weighted-average discount rate	11.8		%

The costs related to our leases are as follows:



	Year ended December 31, 2019
Operating Lease:
Operating lease costs	$	7,460

Financing Lease:
Amortization expense	2,129
Interest on lease liabilities	3,630

Total lease costs	$	13,219

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



	Operating Leases		Financing Leases
Year ended December 31,
2020	$	7,768	$	8,078
2021	6,340		6,775
2022	5,775		5,173
2023	4,486		3,686
2024	3,668		2,585
Thereafter	21,220		24,215
Total minimum lease payments	$	49,257	$	50,512
Less: interest	14,354		22,015
Present value of lease liabilities	$	34,903	$	28,497

Sale-Leaseback



Year Ended	# Solar PV Projects Sold (actual #’s)	Sale Price		Deferred Gain Recorded		Deferred Loss Recorded		Financing Lease Asset/Liability Recorded		Initial Lease Term (years)	Minimum Lease Payment		Maximum Lease Payment
Year-ended December 31, 2017	13	$	51,204	$	4,625	$	1,204	$	22,934	10-20	$	4	$	510
Year-ended December 31, 2018	2	$	5,145	$	574	$	—	$	2,625	20	$	3	$	144

A summary of amounts related to sale leasebacks in the Company’s consolidated balance sheets is as follows:



	December 31,		December 31,
	2019		2018
Financing lease assets, net	$	36,134	$	38,263
Deferred loss, short-term, net	115		115
Deferred loss, long-term, net	1,801		1,917
Total deferred loss	$	1,916	$	2,032
Financing lease liabilities, short-term	4,997		4,956
Financing lease liabilities, long-term	23,500		28,407
Total financing lease liabilities	$	28,497	$	33,363
Deferred gain, short-term, net	345		345
Deferred gain, long-term, net	5,463		5,808
Total deferred gain	$	5,808	$	6,153