Leases

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Leases

LEASES

We enter into operating and finance leases primarily for hotels, offices, and equipment. Most leases have initial terms of up to 20 years and contain one or more renewals at our option, generally for five- to 10-year periods. We have generally not included these renewal periods in the lease term as it is not reasonably certain that we will exercise the renewal option. In addition, our leases generally contain fixed and variable components. The variable components of leases of land or building facilities are primarily based on operating performance of the leased property. Our lease agreements may also include non-lease components, such as common area maintenance, which we combine with the lease component to account for both as a single lease component. We calculate the present value of future payments using a discount rate equal to our incremental borrowing rate.

The following table details the composition of lease expense for the 2019 second quarter and 2019 first half:

	June 30, 2019
($ in millions)	Three Months Ended		Six Months Ended
Operating lease cost	$	46	$	91
Variable lease cost	31		58

Additionally, in the 2019 second quarter, we recorded an expense of $34 million in the “Merger-related costs and charges” caption of our Income Statements due to the impairment of a legacy-Starwood office building accounted for as a finance lease.

The following tables present our future minimum lease payments and additional information about our lease obligations as of June 30, 2019:

($ in millions)	Operating Leases			Finance Leases
2019, remaining	$	90		$	6
2020	164			13
2021	148			13
2022	142			13
2023	114			13
Thereafter	680			165
Total minimum lease payments	$	1,338		$	223
Less: Amount representing interest	(318		)	(63		)
Present value of minimum lease payments	$	1,020		$	160

As of June 30, 2019, we had entered into an agreement that we expect to account for as an operating lease with a 20-year term for our new headquarters office, which is not reflected in our Balance Sheets or in the table above as the lease has not commenced.

	June 30, 2019
Weighted Average Remaining Lease Term (in years)
Operating leases	11
Finance leases	15
Weighted Average Discount Rate
Operating leases	5.0	%
Finance leases	4.4	%

The following table details the classification of lease liabilities in our Balance Sheets:

($ in millions)	Caption	June 30, 2019
Operating lease liabilities
Current	Accrued expenses and other	$	127
Noncurrent	Operating lease liabilities	893
		$	1,020
Finance lease liabilities
Current	Current portion of long-term debt	$	6
Noncurrent	Long-term debt	154
		$	160

The following table presents supplemental cash flow information for the 2019 first half:

	Six Months Ended
($ in millions)	June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases	$	89
Operating cash outflows for finance leases	4
Financing cash outflows for finance leases	3

Leases

LEASES

We enter into operating and finance leases primarily for hotels, offices, and equipment. Most leases have initial terms of up to 20 years and contain one or more renewals at our option, generally for five- to 10-year periods. We have generally not included these renewal periods in the lease term as it is not reasonably certain that we will exercise the renewal option. In addition, our leases generally contain fixed and variable components. The variable components of leases of land or building facilities are primarily based on operating performance of the leased property. Our lease agreements may also include non-lease components, such as common area maintenance, which we combine with the lease component to account for both as a single lease component. We calculate the present value of future payments using a discount rate equal to our incremental borrowing rate.

The following table details the composition of lease expense for the 2019 second quarter and 2019 first half:

	June 30, 2019
($ in millions)	Three Months Ended		Six Months Ended
Operating lease cost	$	46	$	91
Variable lease cost	31		58

Additionally, in the 2019 second quarter, we recorded an expense of $34 million in the “Merger-related costs and charges” caption of our Income Statements due to the impairment of a legacy-Starwood office building accounted for as a finance lease.

The following tables present our future minimum lease payments and additional information about our lease obligations as of June 30, 2019:

($ in millions)	Operating Leases			Finance Leases
2019, remaining	$	90		$	6
2020	164			13
2021	148			13
2022	142			13
2023	114			13
Thereafter	680			165
Total minimum lease payments	$	1,338		$	223
Less: Amount representing interest	(318		)	(63		)
Present value of minimum lease payments	$	1,020		$	160

As of June 30, 2019, we had entered into an agreement that we expect to account for as an operating lease with a 20-year term for our new headquarters office, which is not reflected in our Balance Sheets or in the table above as the lease has not commenced.

	June 30, 2019
Weighted Average Remaining Lease Term (in years)
Operating leases	11
Finance leases	15
Weighted Average Discount Rate
Operating leases	5.0	%
Finance leases	4.4	%

The following table details the classification of lease liabilities in our Balance Sheets:

($ in millions)	Caption	June 30, 2019
Operating lease liabilities
Current	Accrued expenses and other	$	127
Noncurrent	Operating lease liabilities	893
		$	1,020
Finance lease liabilities
Current	Current portion of long-term debt	$	6
Noncurrent	Long-term debt	154
		$	160

The following table presents supplemental cash flow information for the 2019 first half:

	Six Months Ended
($ in millions)	June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases	$	89
Operating cash outflows for finance leases	4
Financing cash outflows for finance leases	3