LEASES

6 Months Ended

Jun. 30, 2020

As of June 30, 2020, the Company had two operating leases with Kilroy Realty, L.P. (the "Landlord") for office space located in San Diego, California. The Company currently occupies the office space subject to the first lease, originally signed in July 2016 and later amended in July 2017 and March 2019. In April 2019, the Company entered into a second office lease with the Landlord, which was subsequently amended in May 2020, for office space in an adjacent building located in San Diego, California. The Company plans to consolidate its corporate headquarters into the new lease space beginning in late 2020 and into early 2021.

As a condition of the new lease, the Company has been granted an existing premises continuation option to continue leasing all or a portion of the currently occupied office space, in addition to the new lease space. On February 7, 2020, the Company elected to forgo this continuation option by notifying the Landlord of its intention to vacate the premises of its existing lease. The abandonment of this leased office space, which was originally scheduled to expire in July 2024, coincides with the Company’s expected occupancy of the new office lease space in the adjacent building per the office lease effective April 2019. The Company estimates that it will fully vacate the existing leases in the first quarter of 2021, through which time the Company is obligated to pay all base rent, operating expenses and other obligations due under the existing lease.

Coinciding with the notice delivered to the Landlord, the Company recorded an adjustment to the ROU asset and lease liability in February 2020 to reflect the impending expiration of the existing lease. The remeasurement of the lease liability resulted in a $7.0 million adjustment to the lease liability and ROU asset. A revised timing estimate resulted in the Company recording an additional adjustment, resulting in a reduction of $0.5 million to the related lease liability and ROU asset in the current quarter. The remeasured straight-line expense will be amortized over the revised lease term along with acceleration of related lease incentives.

The ROU asset and lease liability related to the new office lease will be established when the Company is granted access to the premises and has the ability to direct its use, which is expected to occur in phases over the remainder of 2020 as certain spaces become available, the timing of which may be impacted due to circumstances surrounding the COVID-19 pandemic. As such, the ROU asset for the new lease will be established prior to the extinguishment of the ROU asset and lease liability for the existing lease, resulting in an overlap of ROU assets during the interim period between inception of the new lease and

the expiration of the old lease. In June 2020, the Landlord delivered possession of a portion of the new lease space for the purpose of construction of leasehold improvements. Coinciding with our ability to direct the use of that space, and utilizing a discount rate equal to our borrowing rate of 6.7%, the Company has established a ROU asset totaling $8.9 million and a lease liability totaling $8.8 million. The ROU asset and lease liability are offset by lease incentives associated with tenant improvement allowances totaling $2.0 million. Establishment of the ROU asset and lease liability for the remaining spaces under the new lease will occur upon delivery of the respective spaces.

The initial term of the new lease is 7 years, 7 months, and the Landlord has granted the Company an option to extend the term of the lease by a period of 5 years. The measurement of the lease term occurs from the planned occupancy date of the primary spaces estimated to be delivered in the latter part of 2020. The aggregate base rent due over the initial term of the lease is approximately $49.5 million, which consists of $13.0 million for the space delivered in June 2020, and $36.5 million for the primary spaces yet to be delivered.

Following is a schedule of the future minimum rental commitments for our operating lease, excluding commitments related to rental spaces not yet delivered, reconciled to the lease liability and ROU assets as of June 30, 2020 (in thousands):


	June 30, 2020
2020	$	1,207
2021	960
2022	1,543
2023	1,590
2024	1,637
Thereafter	6,435
Total undiscounted future minimum payments	13,372
Lease incentives payable by lessor	(1,983)
Present value discount	(3,121)
Total lease liability	8,268
Unamortized lease incentives, less incentives payable by lessor	(404)
Cash payments in excess of straight-line lease expense	(952)
Total ROU asset	$	6,912

As of June 30, 2020, the ROU asset of $6.9 million was recorded to the Condensed Consolidated Balance Sheets as non-current Other Assets.

As of June 30, 2020, the current and non-current portions of the lease liability were recorded to the Condensed Consolidated Balance Sheets as follows (in thousands):


	June 30, 2020
Other current liabilities	$	1,379
Other non-current liabilities	6,889
Total lease liabilities	$	8,268

For the three and six months ended June 30, 2020 and 2019, the Company recorded a $0.2 million credit to expense and zero, respectively, and $0.6 million and $1.3 million, respectively, in expense related to operating leases.