Leases

12 Months Ended

Dec. 31, 2019

Leases

Leases

7.    Leases

Operating Leases

In October 2016, the Company entered into a lease directly with its landlord for laboratory and office spaces at its corporate headquarters located in San Carlos, California. The Company currently occupies approximately 136,000 square feet comprised of two office spaces (the “First Space” and the “Second Space”). The First Space covers approximately 88,000 square feet, and the Second Space totals approximately 48,000 square feet. The term of this lease is approximately 84 months and expires in October 2023. This lease contains an option to renew the lease term for five years, but the fair market rent amount upon renewal is not available from the landlord.

In addition, the Company entered into a sublease agreement in June 2019 with a third party to sublease 25,879 square feet of space located on the third floor of the San Carlos, California building while maintaining its primary obligation as the intermediate lessor. The term of this lease is approximately 48 months commencing in October 2019 and expiring in September 2023. The yearly lease payment starts at $1.9 million and will escalate annually starting in October 2020.

In March 2018, the Company entered into a lease for its cord blood tissue storage facility in Tukwila, Washington that covers approximately 10,000 square feet. The lease term of this facility began in June 2018 with rent payment commencing in August 2018. The lease term is 62 months expiring in July 2023. The Company has the option to extend this lease for five years, and the fair market rent upon renewal is not determinable. However, since the Company sold its business related to cord blood and tissue storage in September 2019, it is expected the Company will sublet the facility and will not exercise its option to renew the facility upon expiration.

In September 2015, the Company’s subsidiary entered into a long-term lease agreement for laboratory and office space totaling approximately 94,000 square feet in Austin, Texas. The lease term is 132 months beginning in December 2015 and expiring in November 2026 with monthly payments beginning in December 2016.

As a result of electing the package of practical expedients, the Company did not reassess the classification for the three existing leases described above upon the adoption of ASC 842, which carried over as operating leases. These leases are not impacted by any renewal or termination option. In addition, the Company has also entered into leases of individual workspaces at premises located in different locations on a month-to-month basis and is not committed to an established lease term. The Company has elected to not recognize them as the right-of-use assets on the balance sheet as they are all considered as short-term leases. Short-term lease expenses were insignificant in the year ended December 31, 2019.

The operating lease right-of-use assets are classified as noncurrent assets in the balance sheet. The corresponding lease liabilities are separated into current and long-term portions as follows:

	December 31,
	2019
	(in thousands)
Operating lease liabilities, current portion included in other accrued liabilities	$	5,739
Operating lease liabilities, long-term portion		26,297
Total operating lease liabilities	$	32,036

The initial recognition of the operating lease liabilities was measured as the present value of the future minimum lease payments using a discount rate determined as of January 1, 2019. The operating right-of-use assets was calculated as the operating lease liabilities discounted at the present value, less the amount of unamortized tenant improvement allowance and deferred rent. The discount rate used was the Company’s incremental borrowing rate given that the implicit rate to each lease was not readily determinable. As of the adoption date, the incremental borrowing rate was estimated as the annual percentage yield resulting from a corporate debt financing over a loan term approximating the remaining term of each lease, with the effect of certain credit risk rating. As of December 31, 2019, the weighted-average remaining lease term was 3.04 years and the weighted-average discount rate was 10.77%.

Subsequent to the adoption date, the Company continues to recognize lease expense on a straight-line basis as was required under the previous guidance, ASC 840. The lease expense includes the amortization of the right-of-assets with the associated interest component estimated by applying the effective interest method. For the year ended December 31, 2019, total lease expense of $7.8 million was recognized in the statements of operations and comprehensive loss. In addition, the Company recorded an impairment expense of $0.4 million in selling general and administrative expenses for the right-of-use asset related to the storage facility lease in connection with the disposal of business in the year ended December 31, 2019 (Note 13). Cash paid for amounts in the measurement of operating lease liabilities totaled $8.6 million for the year ended December 31, 2019.

The future annual minimum lease payments under all non-cancelable operating leases as of December 31, 2019 are as follows:

	Operating Leases
	(in thousands)
Year ending December 31:
2020	$	8,825
2021		9,067
2022		9,319
2023		7,797
2024		2,400
2025 and thereafter		4,730
Total future minimum lease payments		42,138
Less: imputed interest		(10,102)
Operating lease liabilities	$	32,036

As of December 31, 2018, prior to the adoption of Topic 842, annual future minimum payments of our operating leases were as follows:

	Operating Leases
	(in thousands)
Year ending December 31:
2019	$	8,588
2020		8,825
2021		9,067
2022		9,319
2023		7,702
2024 and thereafter		7,130
Total future minimum lease payments	$	50,631

Rent expense for the years ended December 31, 2019, 2018 and 2017 was $7.8 million, $7.4 million and $7.2 million, respectively. Several lease arrangements contain provisions for variable lease payments relating to utilities and maintenance costs. Variable lease payments are expensed in the period in which the obligation for those payments is incurred and excluded from the calculation of lease liabilities and right-of-use assets.