Leases

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Leases

LEASES

We enter into operating and finance leases primarily for hotels, offices, and equipment. Most leases have initial terms of up to 20 years and contain one or more renewals at our option, generally for five- to 10-year periods. We have generally not included these renewal periods in the lease term as it is not reasonably certain that we will exercise the renewal option. In addition, our leases generally contain fixed and variable components. The variable components of leases of land or building facilities are primarily based on operating performance of the leased property. Our lease agreements may also include non-lease components, such as common area maintenance, which we combine with the lease component to account for both as a single lease component. We calculate the present value of future payments using a discount rate equal to our incremental borrowing rate.

The following table details the composition of lease expense for the 2019 third quarter and 2019 first three quarters:

	September 30, 2019
($ in millions)	Three Months Ended		Nine Months Ended
Operating lease cost	$	47	$	138
Variable lease cost	27		85

Additionally, in the 2019 second quarter, we recorded an expense of $34 million in the “Merger-related costs and charges” caption of our Income Statements due to the impairment of a legacy-Starwood office building accounted for as a finance lease.

The following table presents our future minimum lease payments as of September 30, 2019:

($ in millions)	Operating Leases			Finance Leases
2019, remaining	$	44		$	3
2020	172			13
2021	156			13
2022	148			13
2023	113			13
Thereafter	666			165
Total minimum lease payments	$	1,299		$	220
Less: Amount representing interest	(300		)	(61		)
Present value of minimum lease payments	$	999		$	159
Current (1)	131			6
Noncurrent (2)	868			153
	$	999		$	159

⁽¹⁾  Operating leases recorded in the “Accrued expenses and other” and finance leases recorded in the “Current portion of long-term debt” captions of our Balance Sheets.

⁽²⁾  Operating leases recorded in the “Operating lease liabilities” and finance leases recorded in the “Long-term debt” captions of our Balance Sheets.

As of September 30, 2019, we had entered into an agreement that we expect to account for as an operating lease with a 20-year term for our new headquarters office, which is not reflected in our Balance Sheets or in the table above as the lease has not commenced.

The following table presents additional information about our lease obligations as of September 30, 2019:

	Operating leases		Finance leases
Weighted Average Remaining Lease Term (in years)	11		15
Weighted Average Discount Rate	4.9	%	4.4	%

The following table presents supplemental cash flow information for the 2019 first three quarters:

	Nine Months Ended
($ in millions)	September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases	$	133
Operating cash outflows for finance leases	5
Financing cash outflows for finance leases	4

Leases

LEASES

We enter into operating and finance leases primarily for hotels, offices, and equipment. Most leases have initial terms of up to 20 years and contain one or more renewals at our option, generally for five- to 10-year periods. We have generally not included these renewal periods in the lease term as it is not reasonably certain that we will exercise the renewal option. In addition, our leases generally contain fixed and variable components. The variable components of leases of land or building facilities are primarily based on operating performance of the leased property. Our lease agreements may also include non-lease components, such as common area maintenance, which we combine with the lease component to account for both as a single lease component. We calculate the present value of future payments using a discount rate equal to our incremental borrowing rate.

The following table details the composition of lease expense for the 2019 third quarter and 2019 first three quarters:

	September 30, 2019
($ in millions)	Three Months Ended		Nine Months Ended
Operating lease cost	$	47	$	138
Variable lease cost	27		85

Additionally, in the 2019 second quarter, we recorded an expense of $34 million in the “Merger-related costs and charges” caption of our Income Statements due to the impairment of a legacy-Starwood office building accounted for as a finance lease.

The following table presents our future minimum lease payments as of September 30, 2019:

($ in millions)	Operating Leases			Finance Leases
2019, remaining	$	44		$	3
2020	172			13
2021	156			13
2022	148			13
2023	113			13
Thereafter	666			165
Total minimum lease payments	$	1,299		$	220
Less: Amount representing interest	(300		)	(61		)
Present value of minimum lease payments	$	999		$	159
Current (1)	131			6
Noncurrent (2)	868			153
	$	999		$	159

⁽¹⁾  Operating leases recorded in the “Accrued expenses and other” and finance leases recorded in the “Current portion of long-term debt” captions of our Balance Sheets.

⁽²⁾  Operating leases recorded in the “Operating lease liabilities” and finance leases recorded in the “Long-term debt” captions of our Balance Sheets.

As of September 30, 2019, we had entered into an agreement that we expect to account for as an operating lease with a 20-year term for our new headquarters office, which is not reflected in our Balance Sheets or in the table above as the lease has not commenced.

The following table presents additional information about our lease obligations as of September 30, 2019:

	Operating leases		Finance leases
Weighted Average Remaining Lease Term (in years)	11		15
Weighted Average Discount Rate	4.9	%	4.4	%

The following table presents supplemental cash flow information for the 2019 first three quarters:

	Nine Months Ended
($ in millions)	September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases	$	133
Operating cash outflows for finance leases	5
Financing cash outflows for finance leases	4