22. Leases

We lease certain retail locations, warehouses, distribution centers, office space, land, equipment and software. Assets held under capital leases are included in property and equipment. Operating lease rentals are expensed on a straight-line basis over the life of the lease beginning on the date we take possession of the property. At lease inception, we determine the lease term by assuming the exercise of those renewal options that are reasonably assured. The exercise of lease renewal options is at our sole discretion. The lease term is used to determine whether a lease is capital or operating and is used to calculate straight-line rent expense. Additionally, the depreciable life of leased assets and leasehold improvements is limited by the expected lease term.

Rent expense is included in SG&A expenses. Some of our lease agreements include rental payments based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. Certain leases require us to pay real estate taxes, insurance, maintenance and other operating expenses associated with the leased premises. These expenses are classified in SG&A, consistent with similar costs for owned locations. Rent income received from tenants who rent properties is recorded as a reduction to SG&A expense.

Rent Expense (millions)	2012			2011			2010



Property and equipment	$	194		$	193		$	188
Software		33			33			25
Rent income (a)		(85	)		(61	)		(13	)

Total rent expense	$	142		$	165		$	200

(a): Rent income in 2012 and 2011 includes $75 million and $51 million, respectively, related to sites acquired in our Canadian leasehold acquisition that are being subleased back to Zellers for various terms, which all end no later than March 31, 2013.

Total capital lease interest expense was $109 million in 2012 (including $78 million of interest expense on Canadian capitalized leases), $69 million in 2011 (including $44 million of interest expense on Canadian capitalized leases) and $16 million in 2010, and is included within net interest expense on the Consolidated Statements of Operations.

Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 50 years. Certain leases also include options to purchase the leased property. Assets recorded under capital leases as of February 2, 2013 and January 28, 2012 were $2,038 million and $1,752 million, respectively.

Future Minimum Lease Payments (millions)	Operating Leases (a)		Capital Leases (b)			Rent Income			Total



2013	$	179	$	136		$	(11	)	$	304
2014		174		173			(6	)		341
2015		169		150			(5	)		314
2016		158		148			(4	)		302
2017		154		146			(4	)		296
After 2017		3,195		4,244			(17	)		7,422

Total future minimum lease payments	$	4,029	$	4,997		$	(47	)	$	8,979
Less: Interest (c)				(3,035	)

Present value of future minimum capital lease payments (d)			$	1,962

(a): Total contractual lease payments include $2,039 million related to options to extend lease terms that are reasonably assured of being exercised and also includes $181 million of legally binding minimum lease payments for stores that are expected to open in 2013 or later.
(b): Capital lease payments include $3,323 million related to options to extend lease terms that are reasonably assured of being exercised and also includes $947 million of legally binding minimum payments for stores opening in 2013 or later.
(c): Calculated using the interest rate at inception for each lease.
(d): Includes the current portion of $21 million.