Leases

3 Months Ended

Mar. 31, 2020

Note 5 – Leases

The components of lease expense were as follows (in millions):



	Three Months Ended March 31,
	2019			2020
Lease cost
Finance lease cost:
Amortization of assets	$	36		$	44
Interest on lease liabilities	4			4
Operating lease cost	67			95
Short-term lease cost	8			6
Variable lease cost	25			30
Sublease income	(1		)	(1		)
Total lease cost	$	139		$	178

The Company did not enter into nor commence any new material operating or finance leases during the three months ended March 31, 2020. The assumptions used to value new leases for the periods presented were as follows:



	As of
	December 31, 2019		March 31, 2020
Weighted-average remaining lease term
Operating leases	16 years		15 years
Finance leases	2 years		2 years
Weighted-average discount rate
Operating leases	7.1	%	7.1	%
Finance leases	5.0	%	4.8	%

Maturities of lease liabilities were as follows (in millions):



	As of March 31, 2020
	Operating Leases			Finance Leases
Remainder of 2020	$	129		$	138
2021	264			137
2022	295			54
2023	253			—
2024	210			—
Thereafter	2,213			—
Total undiscounted lease payments	3,364			329
Less: imputed interest	(1,640		)	(14		)
Total lease liabilities	$	1,724		$	315

As of March 31, 2020, the Company had additional operating leases and finance leases, primarily for corporate offices and servers, that have not yet commenced of $586 million and $16 million, respectively. These operating and finance leases will commence between fiscal years 2020 and 2022 with lease terms ranging from 5 to 11 years.

Mission Bay 1 & 2

In 2015, the Company entered into a joint venture (“JV”) agreement with a real estate developer (“JV Partner”) to develop land (“the Land”) in San Francisco to construct the Company’s new headquarters (the “Headquarters”). The Headquarters will consist of two adjacent office buildings totaling approximately 423,000 rentable square feet. In connection with the JV arrangement, the Company had acquired a 49% interest in the JV, the principal asset of which was the Land.

In 2016, the Company and the JV Partner agreed to dissolve the JV and terminate the Company’s commitment to the lease of the Headquarters (together “the real estate transaction”) and the Company retained a 49% indirect interest in the Land (“Indirect Interest”). Under the terms of the real estate transaction, the Company obtained the rights and title to the partially constructed building, will complete the development of the two office buildings and retain a 100% ownership in the buildings. In connection with the real estate transaction, the Company also executed two 75-year land lease agreements (“Land Leases”). As of March 31, 2020, commitments under the Land Leases total $161 million until February 2032. After 2032, the annual rent amount will adjust annually based on the prevailing consumer price index.

The real estate transaction is accounted for as a financing transaction of the Company’s 49% Indirect Interest due to the Company’s continuing involvement through a purchase option on the Indirect Interest. As a financing transaction, the cash and deferred sales proceeds received from the real estate transaction are recorded as a financing obligation. As of March 31, 2020, the Company’s Indirect Interest of $65 million is included in property and equipment, net and a corresponding financing obligation of $78 million is included in other long-term liabilities. Future land lease payments of $1.7 billion will be allocated 49% to the financing obligation of the Indirect Interest and 51% to the operating lease of land.

Future minimum payments related to the financing obligations as of March 31, 2020 are summarized below (in millions):



	Future Minimum Payments
Fiscal Year Ending December 31,
Remainder of 2020	$	4
2021	6
2022	6
2023	6
2024	6
Thereafter	827
Total	$	855

Leases

Note 5 – Leases

The components of lease expense were as follows (in millions):



	Three Months Ended March 31,
	2019			2020
Lease cost
Finance lease cost:
Amortization of assets	$	36		$	44
Interest on lease liabilities	4			4
Operating lease cost	67			95
Short-term lease cost	8			6
Variable lease cost	25			30
Sublease income	(1		)	(1		)
Total lease cost	$	139		$	178



	As of
	December 31, 2019		March 31, 2020
Weighted-average remaining lease term
Operating leases	16 years		15 years
Finance leases	2 years		2 years
Weighted-average discount rate
Operating leases	7.1	%	7.1	%
Finance leases	5.0	%	4.8	%

Maturities of lease liabilities were as follows (in millions):



	As of March 31, 2020
	Operating Leases			Finance Leases
Remainder of 2020	$	129		$	138
2021	264			137
2022	295			54
2023	253			—
2024	210			—
Thereafter	2,213			—
Total undiscounted lease payments	3,364			329
Less: imputed interest	(1,640		)	(14		)
Total lease liabilities	$	1,724		$	315

Mission Bay 1 & 2

Future minimum payments related to the financing obligations as of March 31, 2020 are summarized below (in millions):



	Future Minimum Payments
Fiscal Year Ending December 31,
Remainder of 2020	$	4
2021	6
2022	6
2023	6
2024	6
Thereafter	827
Total	$	855