Effective January 1, 2019, the Company adopted ASC 842, Leases, using the optional transition method. The Company’s lease portfolio for the three and six months ended June 30, 2020 includes: leases for its current headquarters location, a data center colocation lease, vehicle leases for its salesforce representatives, and leases for computer and office equipment.

Lease cost is recognized on a straight-line basis over the lease term. The components of lease cost for the three and six months ended June 30, 2020 and 2019 are as follows (in thousands):

(1)

Operating lease cost is presented net of approximately $0.3 million of sublease income for each of the three and six months ended June 30, 2019. Sublease income relates to a sublease agreement between Ironwood and Cyclerion executed upon the Separation. The sublease agreement terminated in May 2019.

Supplemental cash flow information related to leases for the periods reported is as follows:


	Six Months Ended
	June 30,
	2020			2019
Right-of-use assets obtained in exchange for new operating lease upon adoption of ASC 842 (in thousands)	$	—		$	88,299
Adjustment to right-of-use assets as a result of the lease modification at the Separation date (in thousands)		—			(40,427)
Adjustment to right-of-use assets as a result of the termination of the Binney Street Lease (in thousands)		—			(34,440)
Right-of-use assets obtained in exchange for new operating lease liabilities⁽¹⁾ (in thousands)		—			18,452
Cash paid for amounts included in the measurement of lease liabilities (in thousands)		86			6,619
Weighted-average remaining lease term of operating leases (in years)		9.7			7.9
Weighted-average discount rate of operating leases		5.8	%		5.3	%

(1) Relates to right-of-use assets and operating lease liabilities for the Summer Street Lease (as defined below).

Future minimum lease payments under non-cancelable operating leases as of June 30, 2020 are as follows (in thousands):


	Operating
	Lease
	Payments
2020⁽¹⁾	$	1,060
2021		3,128
2022		3,129
2023		3,065
2024		3,126
2025 and thereafter		18,044
Total future minimum lease payments		31,552
Less: present value adjustment		(7,731)
Operating lease liabilities at June 30, 2020		23,821
Less: current portion of operating lease liabilities		(2,610)
Operating lease liabilities, net of current portion	$	21,211

(1) For the six months ending December 31, 2020.

Summer Street Lease (current headquarters)

On June 11, 2019, the Company entered into a non-cancelable operating lease (the “Summer Street Lease”) for approximately 39,000 square feet of office space on the 23^rd floor of 100 Summer Street, Boston, Massachusetts (the “Summer Street Property”). The Summer Street Property began serving as the Company’s headquarters in October 2019, replacing its prior headquarters at 301 Binney Street in Cambridge, Massachusetts. The Summer Street Lease terminates on June 11, 2030 and includes an option to extend the term of the lease for an additional five years at a market base rental rate, a 2% annual rent escalation, free rent periods, and a tenant improvement allowance. The rent expense for the Summer Street Property, inclusive of the escalating rent payments and lease incentives, is recognized on a straight-line basis over the lease term. Additionally, the Summer Street Lease requires a letter of credit to secure the Company’s obligations under the lease agreement of approximately $1.0 million, which is collateralized by a money market account recorded as non-current restricted cash on the Company’s condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019.

At lease inception, the Company recorded a right-of-use asset and a lease liability using an incremental borrowing rate of approximately 5.8%. At June 30, 2020, the balances of the right-of-use asset and operating lease liability were approximately $17.2 million and approximately $23.5 million, respectively. At December 31, 2019, the balances of the right-of-use asset and operating lease liability were approximately $17.7 million and approximately $22.8 million, respectively.

Lease cost related to the Summer Street Lease recorded during the three and six months ended June 30, 2020 was approximately $0.7 million and approximately $1.3 million, respectively. Lease cost related to the Summer Street Lease recorded during each of the three and six months ended June 30, 2019 was approximately $0.2 million.

Binney Street Lease (prior headquarters)

The Company rented office space at 301 Binney Street, Cambridge, Massachusetts (“Binney Street Property”) under a non-cancelable operating lease, entered into in January 2007, as amended (“Binney Street Lease”) through October 2019. The Binney Street Property previously served as the Company’s headquarters and was replaced by the Summer Street Property in October 2019, as discussed above.

On April 1, 2019, the Company modified its lease with BMR-Rogers Street LLC (“Binney Street Landlord”), to reduce its leased premises to approximately 108,000 rentable square feet of office space on the first and third floors. The surrendered portion of approximately 114,000 rentable square feet on the first and second floor of the building was then occupied by Cyclerion under a direct lease between Cyclerion and the Binney Street Landlord. As a result of the modification, the Company adjusted the value of its right-of-use asset and operating lease liability using an incremental borrowing rate of approximately 5.1%, and recognized a gain of approximately $3.2 million, which was recorded as a reduction to operating expenses on its condensed consolidated statement of operations. The Company elected to

determine the proportionate reduction in the right-of-use asset based on the reduction to the lease liability and will apply that methodology consistently to all comparable future modifications that decrease the scope of the lease.

On June 11, 2019, the Company entered into a lease termination agreement (the “Lease Termination”) with the Binney Street Landlord to terminate the Company’s lease for approximately 108,000 square feet of office space. The Lease Termination was effective during the fourth quarter of 2019 in exchange for an approximately $9.0 million payment to the Binney Street Landlord. The Company determined that the Lease Termination would be accounted for as a lease modification that reduces the term of the existing lease. As a result of this modification, the Company adjusted the value of its right-of-use asset and operating lease liability using an incremental borrowing rate of approximately 4.0%.

Lease cost related to the Binney Street Lease recorded during the three and six months ended June 30, 2019 was approximately $3.6 million and approximately $8.0 million, respectively, net of sublease income of approximately $0.3 million in each period.

Data center colocation lease

The Company rents space for its data center at a colocation in Boston, Massachusetts under a non-cancelable operating lease (the “Data Center Lease”). The Data Center Lease includes a 4% annual rent escalation. The rent expense, inclusive of the escalating rent payments, is recognized on a straight-line basis over the lease term through August 2022. The Company recorded a right-of-use asset of approximately $0.6 million and a lease liability of approximately $0.6 million associated with the Data Center Lease upon adoption of ASC 842. The incremental borrowing rate for the outstanding Data Center Lease obligation upon adoption of ASC 842 was approximately 6.0%. During the three months ended March 31, 2019, the Company migrated its data management process to a cloud-based services system, rendering its current data center technology and assets obsolete. As a result, the Company considered the right-of-use asset associated with the Data Center Lease to be fully impaired. The Company recorded a charge of approximately $0.5 million to selling, general, and administrative expenses on its condensed consolidated statement of operations as a result of the impairment during the three months ended March 31, 2019.

At June 30, 2020 and December 31, 2019, the lease liability associated with the Data Center Lease was approximately $0.4 million and approximately $0.4 million, respectively.

Costs related to the Data Center Lease were insignificant for each of the three and six months ended June 30, 2020 and 2019, respectively.

Vehicle fleet leases

During April 2018, the Company entered into a master services agreement containing 12-month leases (the “2018 Vehicle Leases”) for vehicles within its fleet for its field-based sales force and medical science liaisons. These leases are classified as short-term in accordance with the practical expedient in ASC 842. The 2018 Vehicle Leases expire at varying times beginning in June 2019, with a monthly renewal provision. In accordance with the terms of the 2018 Vehicle Leases, the Company maintains a letter of credit securing its obligation under the lease agreements of $1.3 million, which is collateralized by a money market account recorded as current restricted cash on the Company’s condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019.

Lease cost related to the 2018 Vehicle Leases was approximately $0.4 million and approximately $0.7 million for the three and six months ended June 30, 2020, respectively. Lease cost related to the 2018 Vehicle Leases was approximately $0.4 million and approximately $0.8 million for the three and six months ended June 30, 2019, respectively.