Leases
Right-of-use (“ROU”) assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. As of December 31, 2025, Registrant has right-of-use assets of $6.1 million, short-term operating lease liabilities of $2.1 million and long-term operating lease liabilities of $4.4 million. Currently, Registrant does not have any financing leases.
Significant assumptions and judgments made as part of the lease standard include determining (i) whether a contract contains a lease, (ii) whether a contract involves an identified asset, and (iii) which party to the contract directs the use of the asset. The discount rates used to calculate the present value of lease payments were determined based on hypothetical borrowing rates available to Registrant over terms similar to the lease terms.
Registrant’s leases consist of real estate and equipment leases, which are mostly GSWC’s. Most of Registrant’s leases require fixed lease payments. Some real estate leases have escalation payments which depend on an index. Variable lease costs were not material. Lease terms used to measure the lease liability include options to extend the lease if the option is reasonably certain to be exercised. Lease and non-lease components were combined to measure lease liabilities.
Registrant’s supplemental lease information is as follows (in thousands, except for weighted average data): | | | | | | | | | | | |
| For The Year Ended December 31, 2025 | | For The Year Ended December 31, 2024 |
| | | |
| Operating lease costs | $2,589 | | $2,543 |
| Short-term lease costs | $334 | | $323 |
| | | |
| Weighted average remaining lease term (in years) | 3.02 | | 3.87 |
| Weighted-average discount rate | 4.7% | | 4.7% |
| | | |
| Non-cash transactions | | | |
| Lease liabilities arising from obtaining right-of-use assets | $302 | | $2,210 |
For the years 2025, 2024 and 2023, Registrant’s consolidated rent expense was approximately $2.6 million, $2.6 million and $2.3 million, respectively. Registrant’s future minimum payments under long-term non-cancelable operating leases as of December 31, 2025 are as follows (in thousands):
| | | | | |
| 2026 | $ | 2,315 | |
| 2027 | 2,193 | |
| 2028 | 1,821 | |
| 2029 | 617 | |
| 2030 | — | |
| Thereafter | — | |
| Total lease payments | 6,946 | |
| Less: imputed interest | 478 | |
| Total lease obligations | 6,468 | |
| Less: current obligations | 2,062 | |
| Long-term lease obligations | $ | 4,406 | |
The consolidated operations of AWR and the operations of GSWC in regard to future minimum payments under long-term non-cancelable operating leases are not materially different.
About Leases Disclosures
Lease disclosures under ASC 842 provide a comprehensive view of a company's leased asset portfolio, including the split between operating and finance leases, discount rates used to present-value future payments, and the maturity schedule of lease obligations. This section reveals a significant source of off-balance-sheet commitments that were largely hidden before the current standard.
Key signals: the weighted-average discount rate affects the size of recorded lease liabilities — a higher rate reduces the reported obligation, so compare the chosen rate against the company's incremental borrowing rate. The operating versus finance lease mix affects both EBITDA and operating income presentation. Watch the maturity table for concentration risk: large payment cliffs in specific years may create cash flow pressure. Variable lease payments excluded from the liability measurement represent real obligations that do not appear on the balance sheet. Compare total lease costs against prior-year operating lease expense to assess the true economic burden.