Leases

6 Months Ended

Jun. 30, 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 five years. The Company concluded that the two remaining renewal options of five-years each are reasonably certain to be exercised; therefore the concluded lease term is 15 years and 7 months. The lease was previously accounted for as an operating lease. The Company reassessed the lease classification of the SV4 lease 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 right-of-use ("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.

Headquarter Office in Redwood City, California ("HQ Office")

In April 2020, the Company entered into a lease amendment to (i) extend the lease term of the existing space for another 10.5 years and (ii) lease additional space within its HQ Office building, which commenced on June 1, 2020. Both spaces have two five-year renewal options which the Company determined were not reasonably certain to be exercised. Therefore, the concluded lease term for both spaces was approximately 11 years, expiring on March 31, 2031. The existing space was previously accounted for as a finance lease. The Company concluded that the building and land components for both spaces should be accounted for as finance leases and operating leases, respectively. During the three months ended June 30, 2020, the Company recorded incremental finance lease ROU asset and liability of $42.2 million and operating lease ROU asset and liability of $8.3 million.

Singapore 1 ("SG1") Data Center

In May 2020, the Company exercised a three-year renewal option on the lease of the existing space and entered into a lease agreement to lease additional space in the SG1 Data Center. The building and land were originally accounted for as a finance lease and operating lease, respectively. The Company concluded the remaining five three-year renewal options were reasonably certain to be exercised and therefore, the concluded lease term was 18 years. The Company reassessed the lease classification and determined that the lease should be accounted for as finance lease. Land was determined to not be a component of the lease as the Company no longer controlled substantially all of the economic benefits from its use. The Company recorded incremental finance lease ROU asset and liability of $99.5 million Singapore dollars, or approximately $71.4 million, and de-recognized operating lease ROU asset and liability of $11.4 million Singapore dollars, or approximately $8.1 million, at the exchange rate in effect on June 30, 2020, during the three months ended June 30, 2020.

Abu Dhabi 1 ("AD1") Data Center

In June 2020, the Company entered into two lease agreements to lease additional spaces in the AD1 Data Center. The Company concluded lease terms of both leases are 10 years, including a three-year renewal option for one of the leases. The Company assessed the lease classifications and determined that the leases should be accounted for as finance leases. During the three months ended June 30, 2020, the Company recorded finance lease ROU assets and liabilities of 261.9 million United Arab Emirates Dirham in aggregate, or approximately $71.3 million at the exchange rate in effect on June 30, 2020.

Lease Expenses

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Finance lease cost
Amortization of right-of-use assets (1)	$	28,897	19,811		$	54,062	$	39,897
Interest on lease liabilities	28,438		27,111		56,263		54,634
Total finance lease cost	57,335		46,922		110,325		94,531
Operating lease cost	52,556		54,920		106,347		106,559
Total lease cost	$	109,891	$	101,842	$	216,672	$	201,090

⁽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):

	Six Months Ended June 30, 2020			Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	54,417		$	52,701
Operating cash flows from operating leases	102,146			101,875
Financing cash flows from finance leases	42,681			43,112
Right-of-use assets obtained in exchange for lease obligations: (1)
Finance leases	$	311,951		$	2,597
Operating leases	14,114			77,905
	As of June 30, 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)	$	1,516,351		$	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 June 30, 2020 and December 31, 2019, the Company recorded accumulated amortization of finance lease assets of $528.6 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 June 30, 2020 are as follows (in thousands):

	Operating Leases			Finance Leases			Total
2020 (6 months remaining)	$	87,527		$	95,454		$	182,981
2021	192,368			205,435			397,803
2022	184,049			202,461			386,510
2023	168,561			197,071			365,632
2024	156,627			194,842			351,469
Thereafter	1,094,015			1,975,440			3,069,455
Total lease payments	1,883,147			2,870,703			4,753,850
Plus amount representing residual property value	—			17,626			17,626
Less imputed interest	(499,952		)	(1,127,481		)	(1,627,433		)
Total	$	1,383,195		$	1,760,848		$	3,144,043

The Company entered into agreements with various landlords primarily to lease data center spaces and ground leases which have not yet commenced as of June 30, 2020. These leases will commence between fiscal years 2020 and 2022, with lease terms of 1 to 49 years and a total lease commitment of approximately $705.6 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 five years. The Company concluded that the two remaining renewal options of five-years each are reasonably certain to be exercised; therefore the concluded lease term is 15 years and 7 months. The lease was previously accounted for as an operating lease. The Company reassessed the lease classification of the SV4 lease 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 right-of-use ("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.

Headquarter Office in Redwood City, California ("HQ Office")

In April 2020, the Company entered into a lease amendment to (i) extend the lease term of the existing space for another 10.5 years and (ii) lease additional space within its HQ Office building, which commenced on June 1, 2020. Both spaces have two five-year renewal options which the Company determined were not reasonably certain to be exercised. Therefore, the concluded lease term for both spaces was approximately 11 years, expiring on March 31, 2031. The existing space was previously accounted for as a finance lease. The Company concluded that the building and land components for both spaces should be accounted for as finance leases and operating leases, respectively. During the three months ended June 30, 2020, the Company recorded incremental finance lease ROU asset and liability of $42.2 million and operating lease ROU asset and liability of $8.3 million.

Singapore 1 ("SG1") Data Center

In May 2020, the Company exercised a three-year renewal option on the lease of the existing space and entered into a lease agreement to lease additional space in the SG1 Data Center. The building and land were originally accounted for as a finance lease and operating lease, respectively. The Company concluded the remaining five three-year renewal options were reasonably certain to be exercised and therefore, the concluded lease term was 18 years. The Company reassessed the lease classification and determined that the lease should be accounted for as finance lease. Land was determined to not be a component of the lease as the Company no longer controlled substantially all of the economic benefits from its use. The Company recorded incremental finance lease ROU asset and liability of $99.5 million Singapore dollars, or approximately $71.4 million, and de-recognized operating lease ROU asset and liability of $11.4 million Singapore dollars, or approximately $8.1 million, at the exchange rate in effect on June 30, 2020, during the three months ended June 30, 2020.

Abu Dhabi 1 ("AD1") Data Center

In June 2020, the Company entered into two lease agreements to lease additional spaces in the AD1 Data Center. The Company concluded lease terms of both leases are 10 years, including a three-year renewal option for one of the leases. The Company assessed the lease classifications and determined that the leases should be accounted for as finance leases. During the three months ended June 30, 2020, the Company recorded finance lease ROU assets and liabilities of 261.9 million United Arab Emirates Dirham in aggregate, or approximately $71.3 million at the exchange rate in effect on June 30, 2020.

Lease Expenses

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Finance lease cost
Amortization of right-of-use assets (1)	$	28,897	19,811		$	54,062	$	39,897
Interest on lease liabilities	28,438		27,111		56,263		54,634
Total finance lease cost	57,335		46,922		110,325		94,531
Operating lease cost	52,556		54,920		106,347		106,559
Total lease cost	$	109,891	$	101,842	$	216,672	$	201,090

⁽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):

	Six Months Ended June 30, 2020			Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	54,417		$	52,701
Operating cash flows from operating leases	102,146			101,875
Financing cash flows from finance leases	42,681			43,112
Right-of-use assets obtained in exchange for lease obligations: (1)
Finance leases	$	311,951		$	2,597
Operating leases	14,114			77,905
	As of June 30, 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)	$	1,516,351		$	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 June 30, 2020 and December 31, 2019, the Company recorded accumulated amortization of finance lease assets of $528.6 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 June 30, 2020 are as follows (in thousands):

	Operating Leases			Finance Leases			Total
2020 (6 months remaining)	$	87,527		$	95,454		$	182,981
2021	192,368			205,435			397,803
2022	184,049			202,461			386,510
2023	168,561			197,071			365,632
2024	156,627			194,842			351,469
Thereafter	1,094,015			1,975,440			3,069,455
Total lease payments	1,883,147			2,870,703			4,753,850
Plus amount representing residual property value	—			17,626			17,626
Less imputed interest	(499,952		)	(1,127,481		)	(1,627,433		)
Total	$	1,383,195		$	1,760,848		$	3,144,043

The Company entered into agreements with various landlords primarily to lease data center spaces and ground leases which have not yet commenced as of June 30, 2020. These leases will commence between fiscal years 2020 and 2022, with lease terms of 1 to 49 years and a total lease commitment of approximately $705.6 million.