Build-to-Suit Leases

3 Months Ended

Mar. 31, 2015

Leases [Abstract]

Build-to-Suit Leases

Build-to-Suit Leases

We have entered into multiple complex real estate development and build-to-suit lease arrangements with independent real estate developers to design, construct and lease certain real estate projects. While the independent developers legally own the real estate projects and must finance the overall construction, we agreed to fund certain structural improvements and/or retain obligations related to certain potential construction cost overruns. As a result of our involvement during the construction period, we are considered the owner of the construction project, for accounting purposes only. We have recorded construction costs for these projects as an asset and a corresponding long-term liability within "Property and equipment, net" and "Finance lease obligations for build-to-suit leases," respectively, on our consolidated balance sheets.

When construction of a project is complete, we evaluate whether the build-to-suit lease arrangement qualifies for sales recognition under sale-leaseback accounting guidance. If the lease meets the criteria to qualify as a sale-leaseback, the asset and liability can be derecognized and the lease is accounted for as an operating lease with rent expense recognized over the lease term. If the sale-leaseback criteria are not met, the asset and liability remain on our consolidated balance sheets. The asset is then depreciated over the term of the lease and rental payments under the lease are recorded as a reduction of the liability and interest expense.

During the first quarter of 2015, we changed our non-current liability account title for finance lease obligations for assets under construction to finance lease obligations for build-to-suit leases. This non-current liability account now includes all build-to-suit finance lease obligations, including those for assets under construction as well as projects that did not qualify as a sale-leaseback at the completion of construction. As a result, finance obligations of $7.4 million as of December 31, 2014 and March 31, 2015, respectively, associated with build-to-suit construction projects that have failed sale leaseback, have been reclassified from capital lease obligations to finance lease obligations for build-to-suit leases in the consolidated balance sheets. Such amount as of December 31, 2014 was reclassified to conform to the current period presentation.

During the first quarter of 2015, construction of one of these real estate projects, a data center in the U.K., was partially completed. However, since the project is considered one unit of accounting, we will not perform a sale-leaseback analysis until the entire project is complete. As a result, we placed into service and began depreciating $51.4 million of construction costs related to the completed portion of the project as building and leasehold improvements within "Property and equipment, net" on our consolidated balance sheets. The lease on a portion of the project commenced during the first quarter of 2015 and rental payments are recorded as a reduction of the corresponding liability and as interest expense. At the end of the lease term, we will derecognize the remaining asset and liability balances.

As of December 31, 2014 and March 31, 2015 we had $117.4 million and $146.6 million, respectively, of finance lease obligations for build-to-suit leases related to real estate projects either completed or under construction for which we are deemed the accounting owner.