Leases

12 Months Ended

Dec. 31, 2019

Effective January 1, 2019, the Company adopted ASC 842 using the modified retrospective approach through a cumulative-effect adjustment and utilizing the effective date as its date of initial application, with prior periods unchanged and presented in accordance with the previous lease accounting guidance. Upon adoption, the Company recorded right-of-use assets of $2.0 million and lease liabilities of $2.5 million, of which $1.9 million was classified as non-current and $613 thousand as current. The difference between the value of the right-of-use assets and the lease liabilities related to $512 thousand of net deferred, accrued and prepaid rent that was reclassified against the right-of-use asset upon adoption of ASC 842 on January 1, 2019. The Company has lease agreements for its facilities in Cambridge, Massachusetts, which is the Company’s global headquarters; Vienna, Austria, which is the Company’s research and development center; Waltham, Massachusetts, which is the former headquarters of Arsanis that the Company has sublet to a third party; and Allston, Massachusetts, as further discussed below. There are no restrictions or financial covenants associated with any of the lease agreements.

Cambridge Lease— In August 2017, the Company entered into a non-cancellable operating lease agreement for office space of approximately 13,000 square feet in Cambridge, Massachusetts (“Cambridge Lease”) which expires on July 31, 2022. The Cambridge Lease includes an annual fixed rent escalation clause and such rent escalations were included in the calculation of the right-of-use asset. The Company has the option to extend the lease for one period of 5 additional years. Base rent is approximately $832 thousand annually and the monthly rent expense is being recognized on a straight-line basis over the term of the lease as the Company amortizes the associated operating lease right-of-use asset. In addition to the base rent, the Company is also responsible

for its share of operating expenses, electricity and real estate taxes, in accordance with the terms of lease. These costs are not included in the determination of the leases’ right-of-use operating assets or lease operating liabilities.

Waltham Lease— On March 13, 2019, as part of its Merger with Arsanis, the Company acquired a non-cancellable operating lease for approximately 6,000 square feet of office space in Waltham, Massachusetts (“Waltham Lease”). The Waltham Lease, as amended, commenced on January 1, 2019, and expires approximately 5 years from the commencement date. The base rent is approximately $263 thousand annually. In addition to the base rent, the Company is also responsible for its share of operating expenses, electricity and real estate taxes, which costs are not included in the determination of the leases’ right-of-use assets or lease liabilities. The Company is subleasing the space to a third party for the duration of the lease. As a result, the Company has adjusted the value of the right-of-use asset to its estimated fair value, which represents future sublease income less costs to obtain sublease. The right-of-use asset is being amortized to rent expense over the 5 year term of the lease.

Vienna Austria Lease— On March 13, 2019, as part of its Merger with Arsanis, the Company acquired an operating lease for approximately 400 square meters of laboratory and office space in Vienna, Austria, (the “Vienna Austria Lease”) which commenced on March 1, 2019, as amended, for a term of 2 years. The lease is cancellable by the Company upon three months’ notice with no penalty. The annual base rent is approximately $154 thousand. The Company has classified this lease as a short-term lease as it is not reasonably certain that the Company with not terminate the lease within one year and, accordingly, has not recorded a right-of-use asset. Accordingly, rent expense is recorded on a straight-line basis as incurred over the term of the lease.

Allston Lease— On November 11, 2019, the Company entered into a lease agreement for approximately 28,000 square feet of office space currently under construction in a building located in Allston, Massachusetts. The office space is expected to replace the Company’s current headquarters located in Cambridge, Massachusetts. The Company intends to move into the premises in mid-2020 upon the completion of construction. Monthly rent payments under the lease are expected to commence in May, 2020, reflecting a 180-day rent-free period following the execution of the Lease, subject to the timely completion of construction of the premises. Base rental payments will be approximately $1.0 million annually, plus certain operating expenses. The term of the lease will continue until November 2026, unless earlier terminated in accordance with the terms of the lease. The Company has the right to sublease the premises, subject to landlord consent. The Company also has the right to renew the lease for an additional five years at the then prevailing effective market rental rate. The Company is required to provide the landlord with a $1.1 million security deposit in the form of a letter of credit, which is classified as restricted cash.

For the Allston lease, the Company will participate in the construction of the office space and will incur construction costs to prepare the office space for its use, which will be partially reimbursed by the landlord. The Company has concluded that these construction costs generate and enhance the landlord's assets and, as such, costs that are not reimbursed will be classified as prepaid rent and then reclassified to the right-of-use asset on the lease commencement date, which is expected to occur once the landlord's asset is completed and available for additional leasehold improvements funded by the Company. Upon the lease commencement date, which had not yet occurred as of December 31, 2019, the Company will recognize the lease liability, which will reflect the future rent payments for the term of the lease discounted at the Company's collateralized borrowing rate, and the right-of-use asset, which will be measured as the lease liability plus the prepaid rent incurred to date.

As the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments. The Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

The components of lease expense for the year ended December 31, 2019 were as follows (dollars in thousands):


Lease Cost	For the Year Ended December 31, 2019
Fixed operating lease cost	$	827
Short-term lease costs	122
Total lease expense	$	949
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,007
Leased assets obtained in exchange for new operating lease liabilities⁽¹⁾	$	484
Weighted-average remaining lease term—operating leases	3.0 years
Weighted-average discount rate—operating leases	9.0		%
Sublease income	$	14

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⁽¹⁾Acquired in the Merger

Maturities of lease liabilities due under these lease agreements as of December 31, 2019 are as follows (in thousands):


Maturity of lease liabilities	Operating Leases
2020	$	1,124
2021	1,098
2022	754
2023	263
Total lease payments	3,239
Less: interest	(423)
Total operating lease liabilities as of December 31, 2019	$	2,816

The above table does not include future lease payments related to the Company's Allston lease for which a lease liability has not yet been recorded. The lease liability will be recorded upon the commencement date of the lease. Future lease payments upon the commencement date of the lease are expected to be approximately $0.6 million in 2020, $1.0 million in 2021, $1.0 million in 2022, $1.1 million in 2023, $1.1 million in 2024, $1.1 million in 2025 and $1.1 million in 2026. In addition, the Company expects to incur unreimbursed expenditures of $3.1 million related to the construction of the office space.

As of December 31, 2018, minimum future lease payments under non-cancellable operating leases for each of the following five years and a total thereafter were as follows (in thousands):


Year Ending December 31,	Operating Leases
2019	$	810
2020	823
2021	835
2022	492
Total	$	2,960