Table of Contents WEWORK COMPANIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2019 (UNAUDITED) any expired or existing contracts as of the date of adoption. Therefore, costs that were previously capitalized under ASC 840 will continue to be capitalized and amortized on a straight-line basis over the lease term. In addition, upon adoption, the Company made an accounting policy election to recognize tenant lease incentive receivables as part of the fixed lease payments at the lease commencement date, reducing the initial measurement of the lease obligation and ROU Asset. The Company previously recorded lease incentive receivables when contractually due. As of December 31, 2018, the Company had approximately $232 million of lease incentive receivables contractually due recorded on the accompanying condensed consolidated balance sheet. The adoption of this policy resulted in approximately $900 million of additional unbilled lease incentive commitments payable from landlords which reduced the initial measurement of the lease obligation and ROU Asset for leases that have commenced between January 1, 2019 and June 30, 2019. In connection with the adoption of ASC 842, the Company also made an accounting policy election for all lease related asset classes, to account for the lease and non-lease components as a single lease component. In doing so, the Company has included the common area maintenance and real estate taxes, in addition to base rent, as a component of its total real estate operating lease cost in determining its total lease obligation and has reclassified prior period amounts accordingly for comparability purposes in our disclosures of total real estate operating lease cost. Prior to the adoption, in accordance with ASC 840, common area maintenance payments and reimbursements for real estate taxes were considered executory costs, not included within the Company’s minimum lease payments, and were expensed as incurred. The Company has also made an accounting policy election to exempt leases with an initial term of 12 months or less from being recognized on the balance sheet. Short-term leases primarily relate to leases of office equipment and are not significant in comparison to the Company’s overall lease portfolio. Payments related to those leases will continue to be recognized in the condensed consolidated statement of operations on a straight-line basis over the lease term. The Company has certain leases subject to index adjustments such as relating to inflation rates or fair market rate adjustments. Historically, the Company has calculated and disclosed future minimum rental payments for these leases using the relevant index as of the end of the reporting period. As part of the transition, the Company used the index in effect at transition in its disclosure of future lease payments and its calculation of the lease liability. For leases entered into after January 1, 2019, the index at lease commencement date will be used to calculate the lease liability until lease modification. In connection with the adoption of ASC 842 and the change in the definition of initial direct costs, during the six months ended June 30, 2019, the Company incurred a total expense of $13.8 million, included in growth and new market development expenses on the condensed consolidated statement of operations, relating to legal costs which previously would have been capitalized in accordance with ASC 840. F-82