The Department is committed to over 10,000 leases, which cover office and functional properties, and residential units at diplomatic missions overseas. The majority of these leases are short-term operating leases. In most cases, management expects that the leases will be renewed or replaced by other leases. Personnel from other U.S. Government agencies occupy some of the leased facilities (both residential and non-residential). These agencies reimburse the Department for the use of the properties. Reimbursements are received for approximately $55.3 million of the lease costs.
Capital Leases
The Department has various long-term leases (more than 10 years) for overseas real property that meet the criteria as a capital lease in accordance with SFFAS No. 6, Accounting for Property, Plant, and Equipment. Assets that meet the definition of a capital lease and their related lease liability, are initially recorded at the present value of the future minimum lease payments or fair market value, whichever is less. In general, capital assets are depreciated over the estimated remaining life of the asset, and the related liability is amortized over the term of the lease, which can result in a different value in the asset versus the liability.
Following is a summary of Net Assets Under Capital Leases and future minimum lease payments as of September 30 (Dollars in Thousands).
| Net Assets Under Capital Leases: | 2005 | 2004 |
|---|---|---|
|
Land and Buildings |
$ 55,707 | $ 62,074 |
|
Accumulated Depreciation |
(27,257) |
(28,332) |
|
Net Assets under Capital Leases |
$ 28,450  |
$ 33,742 |
Future Minimum Lease Payments:
| 2005 | 2004 | |||
|---|---|---|---|---|
| Fiscal Year | Lease Payments | Fiscal Year | Lease Payments | |
| 2006 | $ 2,616 | 2005 | $ 3,271 | |
| 2007 | 2,670 | 2006 | 2,923 | |
| 2008 | 2,719 | 2007 | 2,977 | |
| 2009 | 3,099 | 2008 | 3,026 | |
| 2010 | 2,772 | 2009 | 3,406 | |
| 2011 and thereafter | 99,377 |
2010 and thereafter | 123,945 | |
| Total Minimum Lease Payments | $113,253 | $139,548 | ||
| Less: Amount Representing Interest | (73,756) |
(93,921) | ||
| Obligations under Capital Leases | $ 39,497 |
$ 45,627 | ||
During FY 2004, the Department performed a periodic review of its lease portfolio to ensure consistency with GAAP for federal entities. As a result of this process, certain leases were determined to be operating leases. This resulted in a decrease in Net Assets under Capital Leases and Obligations under Capital Leases of $34 million and $39 million, respectively, as of September 30, 2004, which did not materially affect the Department?s principal financial statements.
Operating Leases
The Department leases real property in overseas locations under operating leases. These leases expire in various years. Minimum future rental payments under operating leases having remaining terms in excess of one year as of September 30, 2005 for each of the next 5 years and in aggregate are as follows (Dollars in Thousands).
| Year Ended September 30 | Operating Lease Amounts |
|---|---|
| 2006 | $ 375,729 |
| 2007 | 264,784 |
| 2008 | 178,993 |
| 2009 | 110,211 |
| 2010 | 71,411 |
| 2011 and thereafter | 133,047 |
| Total Minimum Future Lease Payments | $1,134,175 |
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