Leases

12 Months Ended

Dec. 31, 2019

The Company leases certain office and laboratory space. Additionally, the Company has embedded leases at contract manufacturing organizations.

60 Binney Street lease

On September 21, 2015, the Company entered into a lease agreement for office and laboratory space located in a building (the “Building”) at 60 Binney Street, Cambridge, Massachusetts (the “60 Binney Street Lease”), which is now the Company’s corporate headquarters. Under the terms of the 60 Binney Street Lease, starting on October 1, 2016, the Company leases approximately 253,108 square feet of office and laboratory space at $72.50 per square foot per year, or $18.4 million per year in base rent, which is subject to scheduled annual rent increases of 1.75% plus certain operating expenses and taxes. The Company currently maintains a $13.8 million collateralized letter of credit and, subject to the terms of the lease and certain reduction requirements specified therein, including market capitalization requirements, this amount may decrease to $9.2 million over time. Pursuant to a work letter entered into in connection with the 60 Binney Street Lease, the landlord contributed an aggregate of $42.4 million toward the cost of construction and tenant improvements for the Building.

The Company occupied the Building beginning on March 27, 2017 and the 60 Binney Street Lease will continue until March 31, 2027. The Company has the option to extend the 60 Binney Street Lease for two successive five-year terms.

Due to the Company’s involvement in the construction project, including having responsibility to pay for a portion of the costs of finish work and mechanical, electrical, and plumbing elements of the Building, among other items, the Company was deemed for accounting purposes to be the owner of the Building during the construction period, per ASC 840. Accordingly, under ASC 840, construction costs that were incurred by the landlord directly or indirectly through reimbursement to the

Company as part of its tenant improvement allowance were recorded as an asset in property, plant and equipment, net on the Company’s consolidated balance sheets.

The Company evaluated the 60 Binney Street Lease upon occupancy on March 27, 2017 and determined that the 60 Binney Street Lease did not meet the criteria for “sale-leaseback” treatment under ASC 840. This determination was based on, among other things, the Company's continuing involvement with the property in the form of non-recourse financing to the lessor. Accordingly, upon occupancy, the Company commenced depreciating the portion of the building in service over a useful life of 40 years and incurred interest expense related to the financing obligation.

As part of its adoption of ASC 842, the Company de-recognized the building asset and corresponding financing obligation recorded on the Company’s consolidated balance sheets as of December 31, 2018, in accordance with the ASC 842 transition guidance. In applying the ASC 842 transition guidance, the Company classified this lease as an operating lease and recorded a right-of-use asset of $127.3 million and lease liability of $125.8 million on the effective date. The Company is recognizing rent expense on a straight-line basis throughout the remaining term of the lease.

50 Binney Street sublease

In April 2019, the Company entered into a sublease agreement for office space located at 50 Binney Street in Cambridge, Massachusetts (the “50 Binney Street Sublease”) to supplement the Company’s corporate headquarters located at 60 Binney Street in Cambridge, Massachusetts. Under the terms of the 50 Binney Street Sublease, the Company will lease 267,278 square feet of office space for $99.95 per square foot, or $26.7 million per year in base rent subject to certain operating expenses, taxes and annual rent increases of approximately 3%. The lease will commence when the space is available for use by the Company, which is anticipated to be in the second half of 2021, and end on December 31, 2030, unless the Company earlier occupies the premises or other conditions specified in the 50 Binney Street Sublease occur. The sublessor has the right to postpone the commencement date until January 1, 2022 by providing not less than nine months’ prior written notice to the Company. Upon signing the 50 Binney Street Sublease, the Company executed a $40.1 million cash-collateralized letter of credit, which may be reduced in the future subject to the terms of the 50 Binney Street Sublease and certain reduction requirements specified therein. The $40.1 million of cash collateralizing the letter of credit is classified as restricted cash and other non-current assets on the Company’s consolidated balance sheets. Payments will commence at the earlier of (i) the date which is 90 days following the commencement date and (ii) the date the Company takes occupancy of all or any portion of the premises. In connection with the execution of the 50 Binney Street Sublease, the Company also entered into a Purchase Agreement for furniture and equipment (the “Furniture Purchase Agreement”) located on the premises upon lease commencement. Upon execution of the Furniture Purchase Agreement, the Company made an upfront payment of $7.5 million, all of which was recorded within restricted cash and other non-current assets on the Company’s consolidated balance sheets as of December 31, 2019.

The Company will assess the lease classification of the 50 Binney Street Sublease and commence recognition of the associated rent expense upon lease commencement.

Seattle, Washington leases

In July 2018, the Company entered into a lease agreement for office and laboratory space located in a portion of a building in Seattle, Washington. The lease was amended in October 2018 to increase the total rentable space to approximately 36,126 square feet at $54.00 per square foot in base rent per year, which is subject to scheduled annual rent increases of 2.5% plus certain operating expenses and taxes. The lease commenced on January 1, 2019 and the lease term will continue through January 31, 2027 ("the Initial Term"). The Company moved into the facility in June 2019. The lease allowed for a tenant improvement (“TI”) allowance of up to $215.00 per square foot, or approximately $8.0 million. The Company utilized the $8.0 million TI allowance and it has been fully reimbursed by the landlord as of December 31, 2019.

The Company determined the classification of this lease to be an operating lease and recorded a right-of-use asset and lease liability at lease commencement. The Company was determined to be the owner of the tenant improvements and as such recorded the building improvements as property, plant, and equipment, net, and began to depreciate the building improvements over the remaining lease term at such time the assets were placed into service.

In September 2019, the Company entered into a second amendment to the lease (the “Second Amendment”). The Second Amendment added approximately 22,188 square feet to the existing space and extended the lease term of the entire premises by 16 months, or until April 2028. Fixed monthly rent for the expanded space will be incurred at a rate of $62.80 per square foot per year beginning in January 2021, subject to annual increases of 2.5%. The Second Amendment includes a five-year option to

extend the term. The Company is recognizing rent expense on a straight-line basis through the remaining extended term of the lease.

Upon the execution of the Second Amendment, which was deemed to be a lease modification, the Company re-evaluated the assumptions made at the original lease commencement date. The Company determined the Second Amendment consists of two separate contracts under ASC 842. One contract is related to a new right-of-use for the expanded 22,188 square feet of space, which is to be accounted for as a new lease, and the other is related to the modification of term for the original 36,126 square feet of space. The Company recorded an additional right-of-use asset and lease liability upon lease commencement of the expanded space.

Embedded leases

On June 3, 2016, the Company entered into a manufacturing agreement for the future commercial production of the Company’s LentiGlobin and Lenti-D drug products with a contract manufacturing organization. Under this 12-year agreement, the contract manufacturing organization will complete the design, construction, validation and process validation of the leased suites prior to anticipated commercial launch of the product candidates. During construction, the Company paid $12.0 million upon the achievement of certain contractual milestones, and may pay up to $8.0 million in additional contractual milestones if the Company elects its option to lease additional suites. Construction was completed in March 2018 and beginning in April 2018 the Company pays $5.1 million per year in fixed suite fees, as well as certain fixed labor, raw materials, testing and shipping costs for manufacturing services, and may pay additional suite fees if it elects its option to reserve or lease additional suites.

The Company may terminate this agreement at any time upon payment of a one-time termination fee and up to 24 months of fixed suite and labor fees. The Company concluded in prior periods that this agreement contained an embedded lease under ASC 840 as the suites are designated for the Company’s exclusive use during the term of the agreement. The Company concluded that it was not the deemed owner during construction nor was it a capital lease under ASC 840. As a result, in prior periods the Company accounted for the agreement as an operating lease under ASC 840 and recognized straight-line rent expense over the non-cancellable term of the embedded lease. As part of its adoption of ASC 842, effective January 1, 2019, the Company carried forward its existing lease classification under ASC 840. Additionally, the Company recorded a right-of-use asset and lease liability for this operating lease on the effective date and is recognizing rent expense on a straight-line basis throughout the remaining term of the embedded lease.

The Company’s other embedded leases are not material to the consolidated financial statements.

Summary of all lease costs recognized under ASC 842

The following table contains a summary of the lease costs recognized under ASC 842 and other information pertaining to the Company’s operating leases for the year ended December 31, 2019 (in thousands):


	For the year ended December 31, 2019

Lease cost ⁽¹⁾
Operating lease cost	$	35,346
Total lease cost	$	35,346

Other information
Operating cash flows used for operating leases	$	31,026
Weighted average remaining lease term	7.4 years
Weighted average discount rate	6.70		%

⁽¹⁾ Short-term lease costs and variable lease costs incurred by the Company for the twelve months ended December 31, 2019 were immaterial.

Rent expense is calculated on a straight-line basis over the term of the lease. Rent expense recognized under all leases, including additional charges for utilities, parking, maintenance, and real estate taxes was $45.3 million, $9.8 million, and $9.0 million for the years ended December 31, 2019, 2018 and 2017, respectively. Note that the Company adopted ASC 842

effective January 1, 2019 using the required modified retrospective approach and utilizing the effective date as its date of initial application. Therefore, amounts disclosed pertaining to the years ended December 31, 2018 and 2017 are presented under previous accounting guidance and are therefore not comparable to the amounts recorded in the current period under ASC 842.

As of December 31, 2019, future minimum commitments under ASC 842 under the Company’s operating leases were as follows (in thousands):


	As of
Maturity of lease liabilities	December 31, 2019
2020	$	33,257
2021	35,816
2022	31,052
2023	31,540
2024	31,552
2025 and thereafter	88,336
Total lease payments	251,553
Less: imputed interest	(60,566)
Total operating lease liabilities	$	190,987

The above table excludes legally binding minimum lease payments for leases executed but not yet commenced as of December 31, 2019.