Leases

9 Months Ended

Sep. 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.

Singapore Office ("SGO")

In April 2020, the Company entered into an office lease agreement, which commenced on August 1, 2020 with an initial term of seven years, as well as two three-year renewal options and a one-time early termination option for a certain floor after the third year of the lease. The Company determined that the renewal options and the early termination option were not reasonably certain to be exercised and therefore, the concluded lease term was seven years. The Company assessed the lease classification at the commencement date and concluded that the lease should be accounted for as an operating lease. During the three months ended September 30, 2020, the Company recorded operating lease ROU asset and liability of $64.2 million Singapore dollars, or approximately $47.1 million, at the exchange rate in effect on September 30, 2020.

Seoul 1 ("SL1") Data Center

In September 2020, the phase 2 from a previously signed lease for the SL1 data center was delivered and commenced, with an initial lease term of approximately four years and three five-year renewal options. The Company concluded that one renewal option of five years is reasonably certain to be exercised and therefore, the concluded lease term was approximately nine years. The Company assessed the lease classification of the lease at the commencement date and determined the lease should be accounted for as a finance lease. During the three months ended September 30, 2020, the Company recorded finance lease ROU asset and liability of 31,777 million Korean Won and 30,386 million Korean Won, respectively, or $27.2 million and $26.0 million, respectively, at the exchange rate in effect on September 30, 2020.

Lease Expenses

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Finance lease cost
Amortization of right-of-use assets (1)	$	31,900	21,313		$	85,962	$	61,210
Interest on lease liabilities	28,443		28,039		84,706		82,673
Total finance lease cost	60,343		49,352		170,668		143,883
Operating lease cost	55,135		57,946		161,482		164,505
Total lease cost	$	115,478	$	107,298	$	332,150	$	308,388

(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):

	Nine Months Ended September 30, 2020			Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	81,827		$	79,140
Operating cash flows from operating leases	154,262			157,106
Financing cash flows from finance leases	74,446			62,785
Right-of-use assets obtained in exchange for lease obligations: (1)
Finance leases	$	357,137		$	196,725
Operating leases	65,906			143,144
	As of September 30, 2020			As of December 31, 2019
Weighted-average remaining lease term - finance leases (2)	14 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)	$	1,551,396		$	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 September 30, 2020 and December 31, 2019, the Company recorded accumulated amortization of finance lease assets of $564.8 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 September 30, 2020 are as follows (in thousands):

	Operating Leases		Finance Leases		Total
2020 (3 months remaining)	$	38,827	$	50,507	$	89,334
2021	199,311		208,147		407,458
2022	195,390		208,088		403,478
2023	179,643		202,661		382,304
2024	167,778		200,213		367,991
Thereafter	1,143,207		2,021,849		3,165,056
Total lease payments	1,924,156		2,891,465		4,815,621
Plus amount representing residual property value	—		17,335		17,335
Less imputed interest	(500,797)		(1,114,919)		(1,615,716)
Total	$	1,423,359	$	1,793,881	$	3,217,240

The Company entered into agreements with various landlords primarily to lease data center spaces and ground leases which have not yet commenced as of September 30, 2020. These leases will commence between 2020 and 2022, with lease terms of 10 to 49 years and a total lease commitment of approximately $682.0 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.

Singapore Office ("SGO")

In April 2020, the Company entered into an office lease agreement, which commenced on August 1, 2020 with an initial term of seven years, as well as two three-year renewal options and a one-time early termination option for a certain floor after the third year of the lease. The Company determined that the renewal options and the early termination option were not reasonably certain to be exercised and therefore, the concluded lease term was seven years. The Company assessed the lease classification at the commencement date and concluded that the lease should be accounted for as an operating lease. During the three months ended September 30, 2020, the Company recorded operating lease ROU asset and liability of $64.2 million Singapore dollars, or approximately $47.1 million, at the exchange rate in effect on September 30, 2020.

Seoul 1 ("SL1") Data Center

In September 2020, the phase 2 from a previously signed lease for the SL1 data center was delivered and commenced, with an initial lease term of approximately four years and three five-year renewal options. The Company concluded that one renewal option of five years is reasonably certain to be exercised and therefore, the concluded lease term was approximately nine years. The Company assessed the lease classification of the lease at the commencement date and determined the lease should be accounted for as a finance lease. During the three months ended September 30, 2020, the Company recorded finance lease ROU asset and liability of 31,777 million Korean Won and 30,386 million Korean Won, respectively, or $27.2 million and $26.0 million, respectively, at the exchange rate in effect on September 30, 2020.

Lease Expenses

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Finance lease cost
Amortization of right-of-use assets (1)	$	31,900	21,313		$	85,962	$	61,210
Interest on lease liabilities	28,443		28,039		84,706		82,673
Total finance lease cost	60,343		49,352		170,668		143,883
Operating lease cost	55,135		57,946		161,482		164,505
Total lease cost	$	115,478	$	107,298	$	332,150	$	308,388

(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):

	Nine Months Ended September 30, 2020			Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	81,827		$	79,140
Operating cash flows from operating leases	154,262			157,106
Financing cash flows from finance leases	74,446			62,785
Right-of-use assets obtained in exchange for lease obligations: (1)
Finance leases	$	357,137		$	196,725
Operating leases	65,906			143,144
	As of September 30, 2020			As of December 31, 2019
Weighted-average remaining lease term - finance leases (2)	14 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)	$	1,551,396		$	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 September 30, 2020 and December 31, 2019, the Company recorded accumulated amortization of finance lease assets of $564.8 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 September 30, 2020 are as follows (in thousands):

	Operating Leases		Finance Leases		Total
2020 (3 months remaining)	$	38,827	$	50,507	$	89,334
2021	199,311		208,147		407,458
2022	195,390		208,088		403,478
2023	179,643		202,661		382,304
2024	167,778		200,213		367,991
Thereafter	1,143,207		2,021,849		3,165,056
Total lease payments	1,924,156		2,891,465		4,815,621
Plus amount representing residual property value	—		17,335		17,335
Less imputed interest	(500,797)		(1,114,919)		(1,615,716)
Total	$	1,423,359	$	1,793,881	$	3,217,240

The Company entered into agreements with various landlords primarily to lease data center spaces and ground leases which have not yet commenced as of September 30, 2020. These leases will commence between 2020 and 2022, with lease terms of 10 to 49 years and a total lease commitment of approximately $682.0 million.