Leases

3 Months Ended

Mar. 31, 2020

Leases [Abstract]

Leases

Leases

Significant Lease Transactions

Silicon Valley 4 ("SV4") Data Center

In February 2020, the Company exercised its first renewal option available to extend the lease term for the SV4 Data Center for 5 years. After exercising the first renewal option, there are two renewal options of 5 years each remaining. The Company concluded that the two remaining renewal options of 5 years each are reasonably certain to be exercised after considering all relevant factors that create an economic incentive for the Company. Therefore, the concluded lease term is 15 years and 7 months with the lease ending on September 30, 2035. The Company assessed the lease classification of the SV4 lease at the modification date and determined the lease should be accounted for as a finance lease. During the three months ended March 31, 2020, the Company recorded finance lease ROU asset and liability of $62.8 million and $63.3 million, respectively.

Hong Kong 1 ("HK1") Data Center

In March 2020, the Company entered into several lease agreements with the landlord to lease several premises in the HK1 Data Center. One of the premises commenced in March 2020 with an initial term of 18 years. The Company assessed the lease classification of that premises at the commencement date and determined the lease should be accounted for as a finance lease. The Company will assess the remaining premises when the leases commence. During the three months ended March 31, 2020, the Company recorded finance lease ROU asset and liability of 163.0 million Hong Kong dollars or $21.0 million at the exchange rate in effect on March 31, 2020.

Lease Expenses

The components of lease expenses are as follows (in thousands):

	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Finance lease cost
Amortization of right-of-use assets (1)	$	25,166	$	20,086
Interest on lease liabilities	27,825		27,523
Total finance lease cost	52,991		47,609
Operating lease cost	53,791		51,639
Total lease cost	$	106,782	$	99,248

⁽¹⁾ Amortization of right-of-use assets is included with depreciation expense, and is recorded within cost of revenues, sales and marketing and general and administrative expenses in the condensed consolidated statements of operations.

Other Information

Other information related to leases is as follows (in thousands):

	Three Months Ended March 31, 2020			Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	26,967		$	26,604
Operating cash flows from operating leases	51,985			49,262
Financing cash flows from finance leases	18,977			31,158
Right-of-use assets obtained in exchange for lease obligations: (1)
Finance leases	$	115,274		$	16,307
Operating leases	6,612			28,987
	As of March 31, 2020			As of December 31, 2019
Weighted-average remaining lease term - finance leases (2)	15 years			15 years
Weighted-average remaining lease term - operating leases (2)	13 years			13 years
Weighted-average discount rate - finance leases	8		%	9		%
Weighted-average discount rate - operating leases	4		%	4		%
Finance lease assets (3)	$	1,343,406		$	1,277,614

⁽¹⁾ Represents all non-cash changes in ROU assets.

⁽²⁾ Includes lease renewal options that are reasonably certain to be exercised.

⁽³⁾ As of March 31, 2020 and December 31, 2019, the Company recorded accumulated amortization of finance lease assets of $498.1 million and $474.8 million, respectively. Finance lease assets are recorded within property, plant and equipment, net on the condensed consolidated balance sheets.

Maturities of Lease Liabilities

Maturities of lease liabilities as of March 31, 2020 are as follows (in thousands):

	Operating Leases			Finance Leases			Total
2020 (9 months remaining)	$	137,567		$	141,162		$	278,729
2021	190,031			191,679			381,710
2022	182,747			188,362			371,109
2023	167,266			183,177			350,443
2024	155,392			181,116			336,508
Thereafter	1,080,313			1,796,773			2,877,086
Total lease payments	1,913,316			2,682,269			4,595,585
Plus amount representing residual property value	—			17,639			17,639
Less imputed interest	(510,756		)	(1,120,701		)	(1,631,457		)
Total	$	1,402,560		$	1,579,207		$	2,981,767

The Company entered into agreements with various landlords primarily to lease data center spaces and ground leases which have not yet commenced as of March 31, 2020. These leases will commence between fiscal years 2020 and 2022, with lease terms of 2 to 49 years and a total lease commitment of approximately $680.8 million.

Leases

Leases

Significant Lease Transactions

Silicon Valley 4 ("SV4") Data Center

In February 2020, the Company exercised its first renewal option available to extend the lease term for the SV4 Data Center for 5 years. After exercising the first renewal option, there are two renewal options of 5 years each remaining. The Company concluded that the two remaining renewal options of 5 years each are reasonably certain to be exercised after considering all relevant factors that create an economic incentive for the Company. Therefore, the concluded lease term is 15 years and 7 months with the lease ending on September 30, 2035. The Company assessed the lease classification of the SV4 lease at the modification date and determined the lease should be accounted for as a finance lease. During the three months ended March 31, 2020, the Company recorded finance lease ROU asset and liability of $62.8 million and $63.3 million, respectively.

Hong Kong 1 ("HK1") Data Center

In March 2020, the Company entered into several lease agreements with the landlord to lease several premises in the HK1 Data Center. One of the premises commenced in March 2020 with an initial term of 18 years. The Company assessed the lease classification of that premises at the commencement date and determined the lease should be accounted for as a finance lease. The Company will assess the remaining premises when the leases commence. During the three months ended March 31, 2020, the Company recorded finance lease ROU asset and liability of 163.0 million Hong Kong dollars or $21.0 million at the exchange rate in effect on March 31, 2020.

Lease Expenses

The components of lease expenses are as follows (in thousands):

	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Finance lease cost
Amortization of right-of-use assets (1)	$	25,166	$	20,086
Interest on lease liabilities	27,825		27,523
Total finance lease cost	52,991		47,609
Operating lease cost	53,791		51,639
Total lease cost	$	106,782	$	99,248

⁽¹⁾ Amortization of right-of-use assets is included with depreciation expense, and is recorded within cost of revenues, sales and marketing and general and administrative expenses in the condensed consolidated statements of operations.

Other Information

Other information related to leases is as follows (in thousands):

	Three Months Ended March 31, 2020			Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	26,967		$	26,604
Operating cash flows from operating leases	51,985			49,262
Financing cash flows from finance leases	18,977			31,158
Right-of-use assets obtained in exchange for lease obligations: (1)
Finance leases	$	115,274		$	16,307
Operating leases	6,612			28,987
	As of March 31, 2020			As of December 31, 2019
Weighted-average remaining lease term - finance leases (2)	15 years			15 years
Weighted-average remaining lease term - operating leases (2)	13 years			13 years
Weighted-average discount rate - finance leases	8		%	9		%
Weighted-average discount rate - operating leases	4		%	4		%
Finance lease assets (3)	$	1,343,406		$	1,277,614

⁽¹⁾ Represents all non-cash changes in ROU assets.

⁽²⁾ Includes lease renewal options that are reasonably certain to be exercised.

⁽³⁾ As of March 31, 2020 and December 31, 2019, the Company recorded accumulated amortization of finance lease assets of $498.1 million and $474.8 million, respectively. Finance lease assets are recorded within property, plant and equipment, net on the condensed consolidated balance sheets.

Maturities of Lease Liabilities

Maturities of lease liabilities as of March 31, 2020 are as follows (in thousands):

	Operating Leases			Finance Leases			Total
2020 (9 months remaining)	$	137,567		$	141,162		$	278,729
2021	190,031			191,679			381,710
2022	182,747			188,362			371,109
2023	167,266			183,177			350,443
2024	155,392			181,116			336,508
Thereafter	1,080,313			1,796,773			2,877,086
Total lease payments	1,913,316			2,682,269			4,595,585
Plus amount representing residual property value	—			17,639			17,639
Less imputed interest	(510,756		)	(1,120,701		)	(1,631,457		)
Total	$	1,402,560		$	1,579,207		$	2,981,767

The Company entered into agreements with various landlords primarily to lease data center spaces and ground leases which have not yet commenced as of March 31, 2020. These leases will commence between fiscal years 2020 and 2022, with lease terms of 2 to 49 years and a total lease commitment of approximately $680.8 million.