Note 12. Leases

At March 31, 2022, the Company had operating lease liabilities and right of use assets for its offices, manufacturing facilities of ESS Metron, and a ground lease at the Whinstone Facility that expire on various dates through January 2032, inclusive of extension options the Company is reasonably certain will be exercised.

Rental expense for lease payments related to the Company’s operating leases is recognized on a straight-line basis over the remaining lease term. The Company currently does not hold any finance leases. The Company elected to use the practical expedient of not separating lease components for its real estate leases. The Company has elected the short-term lease exception provided, and therefore only recognizes right of use assets and lease liabilities for leases with a term greater than one year. Leases qualifying for the short-term lease exception were insignificant.

As of March 31, 2022 and December 31, 2021, the right of use assets were $21.6 million and $13.2 million, respectively, and the operating lease liabilities were $21.9 million and $13.4 million, respectively, in the accompanying unaudited condensed consolidated balance sheets related to our ground lease and office leases. Operating lease right of use assets are included within long-term assets on the unaudited condensed consolidated balance sheets.

The calculation of the right of use assets and lease liabilities include minimum lease payments over the remaining lease term. Variable lease payments are excluded from the amounts and are recognized in earnings in the period in which the obligation for those payments is incurred. To determine the present value of future minimum lease payments, the Company utilized its incremental borrowing rate adjusted for the remaining lease term and the form of underlying collateral. The discount rate implicit in the leases was not readily determinable.

During the three months ended March 31, 2022, the Company executed a third lease amendment to the ground lease for the Whinstone facility, to add a second 100-acre tract of real property contiguous to the existing 100-acre tract on which the existing Whinstone Facility sits for an additional $0.9 million in annual payments. The initial term of the lease is scheduled to expire on January 31, 2032. Concurrent with this third amendment, the Company executed a first amendment to the water reservation agreement to obtain additional water from a nearby lake to be used by the Company for commercial purposes, such as evaporative cooling in our data center facility, for an additional $1.0 million in annual payments. The term of the original water reservation agreement was reset for a period of twelve years from the original commencement date of April 2021, now expiring on January 31, 2032.

The components of lease expense for the three months ended March 31, 2022 (in thousands):

Other Information 

The following table represents our future minimum operating lease payments as of, and subsequent to, March 31, 2022 under ASC 842 (in thousands):

We recognize ground lease expense in cost of revenues - hosting, and office and other lease expense in selling, general and administrative expenses, respectively, in the accompanying unaudited condensed consolidated statements of operations.