Leases

3 Months Ended

Feb. 29, 2020

Substantially all of our leases for which we are the lessee are operating leases of port facilities and real estate and are included within operating lease right-of-use assets, long-term operating lease liabilities and current portion of operating lease liabilities in our Consolidated Balance Sheet as of February 29, 2020.

We have port facilities and real estate lease agreements with lease and non-lease components, and in such cases, we account for the components as a single lease component.

We do not recognize lease assets and lease liabilities for any leases with an original term of less than one year. For some of our port facilities and real estate lease agreements, we have the option to extend our current lease term by 1 to 10 years. Generally, we do not include renewal options as a component of our present value calculation as we are not reasonably certain that we will exercise the options.

As most of our leases do not have a readily determinable implicit rate, we estimate the incremental borrowing rate ("IBR") to determine the present value of lease payments. We apply judgment in estimating the IBR including considering the term of the lease, the currency in which the lease is denominated, and the impact of collateral and our credit risk on the rate. For leases that were in place upon adoption, we used the remaining lease term as of December 1, 2019 in determining the IBR. For the initial measurement of the lease liabilities for leases commencing after December 1, 2019, the IBR at the lease commencement date was applied.

We amortize our lease assets on a straight-line basis over the lease term. During the quarter ended February 29, 2020, we recognized $17 million of operating lease costs, including lease amortization and imputed interest, related to all of our leases other than the port facilities, as operating lease expense. Variable and short-term lease costs related to operating leases, other than the port facilities, were not material to our consolidated financial statements.

We have multi-year preferential berthing agreements which are operating leases. During the quarter ended February 29, 2020, we had $30 million of lease asset amortization expense and imputed interest expense and $31 million of variable port costs, which vary based on the number of passengers, recorded within commission, transportation and other in our Consolidated Statements of Income (Loss).

We have multiple agreements, with a total undiscounted minimum commitment of approximately $454 million, that have been executed but the lease term has not commenced as of February 29, 2020. These are substantially all related to our rights to use certain port facilities. The leases are expected to commence between 2020 and 2022.

During the quarter ended February 29, 2020, we obtained $107 million of right-of-use assets in exchange for new operating lease liabilities.

Weighted average of the remaining lease terms and weighted average discount rates are as follows:


	February 29, 2020
Weighted average remaining lease term - operating leases (in years)	13
Weighted average discount rate - operating leases	3.1	%

As of February 29, 2020, maturities of lease liabilities were as follows:


(in millions) Year	Total Operating Leases
Remainder of 2020	$	158
2021	188
2022	156
2023	148
2024	142
Thereafter	1,039
Total lease payments	1,832
Less: Present value discount	(352)
Present value of lease liabilities	$	1,480

Under ASC 840, Leases, future minimum lease payments under non-cancelable operating leases of port facilities and other assets as of November 30, 2019 were as follows:


(in millions) Year	Total Operating Leases
2020	$	219
2021	196
2022	161
2023	173
2024	167
Thereafter	1,408
	$	2,324

For time charter arrangements where we are the lessor and for transactions with cruise guests related to the use of cabins, we do not separate lease and non-lease components. As the non-lease components are the predominant components in the agreements, we account for these transactions under the Revenue Recognition guidance.

We have sales-type leases of ships for which we are the lessor. As of February 29, 2020, the net investment related to these leases was $127 million.