Leases

12 Months Ended

Dec. 31, 2020

Finance Leases

The Company leases land and a building for one of its data centers from an entity in which a member of its Board of Directors has a beneficial ownership interest. The building lease expires in 2033 with two subsequent 10-year and one five-year renewal option periods and the land lease expires in 2069. As of December 31, 2020, the finance lease ROU assets, net of accumulated amortization, related to the land and building were $36.7 million and $9.9 million, respectively. As of December 31, 2019, the finance lease ROU assets, net of accumulated amortization, related to the land and building were $37.6 million and $10.7 million, respectively.

In February 2016, a wholly-owned subsidiary of Switch, Ltd. acquired rights and interests to manage, construct and use the Nevada Broadband Telemedicine Initiative (“NBTI”) fiber network. The right to use the NBTI fiber network is accounted for as a finance lease. As of December 31, 2020 and 2019, finance lease ROU assets related to the NBTI fiber network, net of accumulated amortization, were $9.8 million and $10.5 million, respectively. There are no future minimum payment obligations related to this finance lease. The finance lease expires in 2042 with a 25-year renewal option.

The Company is the sole consumer of output from feeders related to substations owned by NV Energy. The Company accounts for these arrangements as finance leases. As of December 31, 2020 and 2019, finance lease ROU assets related to the feeders, net of accumulated amortization, were $1.2 million and $1.0 million, respectively. There are no future minimum payment obligations related to these finance leases. The finance leases expire in 2049 through 2058.

In December 2018, the Company purchased a taxable industrial development revenue bond (the “Bond”) issued by a local government agency (the “Agency”) in order to reduce certain tax expenditures for data center facilities under construction. The Bond matures in December 2032. Pursuant to the terms of the Bond, the Company transferred title to certain of its property and equipment with total costs of $229.8 million and $133.1 million as of December 31, 2020 and 2019, respectively, to the Agency. The Company leases the property and equipment from the Agency subject to an option to purchase for nominal consideration, which the Company may exercise at any time, upon tendering the Bond to the Agency. The title to these assets will revert to the Company upon retirement or cancellation of the Bond. As the Company is both the bondholder and the lessee for the property and equipment, the Company exercised its right to offset the amounts invested in and the obligations for this Bond on the consolidated balance sheets. The underlying assets remain in property and equipment, net on the consolidated balance sheets as all risks and rewards remain with the Company.

The Company has entered into lease agreements for indefeasible rights of use in fibers with non-cancellable terms expiring in 2039. The rights to use these fibers are accounted for as finance leases. As of December 31, 2020 and 2019, finance lease ROU assets related to these fiber agreements, net of accumulated amortization, were each $1.1 million.

The Company includes its finance lease ROU assets within property and equipment, net and the current portion of its finance lease liabilities within accrued expenses and other on its consolidated balance sheets.

Operating Leases

The Company leases land, warehouse storage space, and data center buildings under operating leases that have non-cancellable terms expiring in 2021 through 2066 with entities in which a member of its Board of Directors has a beneficial ownership interest.

In addition, the Company leases an aircraft, warehouse storage space, and storage yards for fiber, construction materials, and equipment under operating leases that have non-cancellable terms expiring in 2021 through 2055.

Operating lease ROU assets of $29.2 million and $30.6 million were included within other assets on the Company’s consolidated balance sheets as of December 31, 2020 and 2019, respectively.

Lease Expense

The components of lease expense are as follows:


	Years Ended December 31,
	2020		2019
	(in thousands)
Finance lease cost
Amortization of ROU assets	$	2,540	$	1,993
Interest on lease liabilities	4,257		3,255
Operating lease cost(1)	6,663		7,136
Short-term lease cost	73		17
Variable lease cost	740		625
Sublease income	(101)		(13)
Total lease cost	$	14,172	$	13,013

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(1)Related party rent included in operating lease cost was $4.7 million for each of the years ended December 31, 2020 and 2019.

Other Information

Other supplemental information related to leases is as follows:


	Years Ended December 31,
	2020		2019
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	4,579	$	3,484
Operating cash flows from operating leases	$	7,241	$	7,167
Financing cash flows from finance leases	$	249	$	876


	December 31,
	2020		2019
Weighted average remaining lease term (in years)
Finance leases	36		37
Operating leases	26		25
Weighted average discount rate
Finance leases	6.9	%	6.9	%
Operating leases	7.2	%	7.2	%

Maturities of Lease Liabilities

Maturities of lease liabilities as of December 31, 2020 are as follows:


	Finance Leases						Operating Leases
	Related Parties		Other		Total		Related Parties		Other		Total
	(in thousands)
2021	$	4,568	$	21	$	4,589	$	3,959	$	1,376	$	5,335
2022	4,843		21		4,864		2,909		1,058		3,967
2023	4,969		22		4,991		2,051		881		2,932
2024	5,036		22		5,058		2,051		877		2,928
2025	5,170		23		5,193		2,051		91		2,142
Thereafter	134,138		384		134,522		50,500		583		51,083
Total undiscounted future cash flows	158,724		493		159,217		63,521		4,866		68,387
Less: amount representing interest	(101,508)		(206)		(101,714)		(38,633)		(707)		(39,340)
Present value of undiscounted future cash flows	$	57,216	$	287	$	57,503	$	24,888	$	4,159	$	29,047

Leases Not Yet Commenced

A wholly-owned subsidiary of Switch, Ltd. entered into three power purchase and sale agreements for electricity over a term of 25 years and two battery energy storage system agreements for battery capacity over a term of 20 years. While the Company determined these agreements contain leases under ASC 842, these agreements have not yet commenced as of December 31, 2020. These agreements result in an aggregate lease commitment of $848.0 million during the respective lease terms to commence on the earlier of October 1, 2022, or upon delivery of the battery energy storage system.

Disclosures Related to Periods Prior to Adoption of ASC 842

During the year ended December 31, 2018, rent expense related to operating leases was $7.7 million, of which $5.0 million was related party rent.