Leases

3 Months Ended

Mar. 31, 2021

LEASES

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.

While a majority of lease payments are based on the rate implicit 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 remeasured and instead are treated as variable lease payments and recognized in the period in which the obligation for those payments is incurred.

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. As of March 31, 2021, we had no finance leases.

The components of lease expense were as follows:


	Three Months Ended March 31,
	2021		2020
	(In millions)
Lease expense
Operating lease expense	$	45	$	38


Sublease income	(2)		(1)
Total lease expense	$	43	$	37

Supplemental cash flow information related to leases was as follows:


	Three Months Ended March 31,
	2021		2020
	(In millions)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	42	$	35
Right-of-use assets obtained in exchange for operating lease liabilities	$	1	$	244

Supplemental balance sheet information related to leases was as follows:


	March 31, 2021			December 31, 2020
	(In millions, except weighted-average figures)
Operating lease right-of-use assets	$	663		$	707
Other current lease liabilities	141			144
Operating lease liabilities	630			642
Total operating lease liabilities	$	771		$	786
Weighted-average remaining lease term—operating leases	6.8 years			6.9 years
Weighted-average discount rate—operating leases	3		%	3		%

Future minimum lease payments for our operating leases as of March 31, 2021 were as follows:


	Operating Leases
Fiscal years:	(In millions)
Remaining 2021	$	115
2022	135
2023	120
2024	107
2025	95
Thereafter	273
Total	$	845
Less: present value discount	(74)
Lease liability	$	771

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 the first quarter of 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 eight 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.

In the first quarter of 2021, we incurred asset impairment charges of $26 million within restructuring and other charges on our condensed consolidated statements of income. The impairments included a reduction to our right-of-use ("ROU") lease assets in the amount of $21 million, which were attributed to certain leased space we are no longer utilizing for our core business operations, a portion of which is being sub-leased.

As of March 31, 2021, we also have additional operating leases that have not yet commenced, primarily for real estate and data centers, with minimum lease payments aggregating to $28 million. These operating leases will commence prior to the end of fiscal year 2021 with lease terms ranging from three years to ten years.