Leases

3 Months Ended

Mar. 31, 2020

PayPal enters into various leases, which are primarily real estate operating leases. We use these properties for executive and administrative offices, data centers, product development offices, and customer service and operations centers. Many leases include one or more renewal or termination options. These options are not included in our determination of the lease term at commencement unless it is reasonably certain the Company will exercise the option. When we reach a decision to exercise a lease renewal or termination option, we recognize the associated impact to the ROU asset and lease liability.

While a majority of lease payments are based on the stated rate in the lease, some lease payments are subject to annual changes based on the Consumer Price Index or another referenced index. In the event of changes to the relevant index, lease liabilities are not re-measured and instead are treated as variable lease payments and recognized in the period in which the obligation for those payments is incurred. All of PayPal’s variable lease payments are based on an index or rate.

The short-term lease exemption has been adopted for all leases with a duration of less than 12 months.

PayPal’s lease portfolio contains a small number of subleases. A sublease situation can arise when currently leased real estate space is available and is surplus to operational requirements.

The components of lease expense were as follows:



	Three Months Ended March 31, 2020			Three Months Ended March 31, 2019
	(In millions)
Lease expense
Operating lease expense	$	38		$	34
Sublease income	(1		)	(2		)
Total lease expense cost	$	37		$	32

Other information:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	35		$	31
Right-of-use assets obtained in exchange for new operating lease liabilities	$	244		$	5

	Balance at March 31, 2020			Balance at December 31, 2019
	(In millions, except weighted-average figures)
Operating lease right-of-use assets	$	687		$	479
Other current lease liabilities	122			104
Operating lease liabilities	608			403
Total operating lease liabilities	730			507
Weighted-average remaining lease term—operating leases	7.3 years			5.8 years
Weighted-average discount rate—operating leases	4		%	5		%

Future minimum lease payments for our operating leases as of March 31, 2020 were as follows:



	Operating Leases
Fiscal years:	(In millions)
Remaining 2020	$	114
2021	139
2022	107
2023	94
2024	86
Thereafter	300
Total	$	840
Less: present value discount	(110		)
Lease liability	$	730

Operating lease amounts include minimum lease payments under our non-cancelable operating leases primarily for office and data center facilities. The amounts presented are consistent with contractual terms and are not expected to differ significantly from actual results under our existing leases.

In February 2020, we entered into a sale-leaseback arrangement as the seller-lessee for a data center as the buyer-lessor obtained control of the facility. We sold the data center and simultaneously entered into an operating lease agreement with the purchaser for the right to use the facility for 8 years. The Company received proceeds of approximately $119 million, net of selling costs, which resulted in a de minimis net gain on the sale transaction.

As of March 31, 2020, we also have additional operating leases that have not yet commenced, primarily for real estate and data centers, with minimum lease payments aggregating to $151 million. These operating leases will commence between fiscal years 2020 and 2021 with lease terms of 3 years to 10 years.