Leases

6 Months Ended

Jun. 30, 2022

Leases.

Leases

7. Leases

Operating Leases

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. In December 2021, the Company entered into an amendment of the Austin lease agreement which extended the lease of the current premises through March 2033. The amendment also includes two additional office spaces (the “First Expansion Premises” and the “Second Expansion Premises”). The First Expansion Premises consists of 32,500 rentable square feet and commenced in February 2022. The Second Expansion Premises consists of 65,222 rentable square feet and commences in September 2022. The terms of the First and Second Expansion Premises expire in March 2033.

In October 2016, the Company entered into a lease directly with its landlord for laboratory and office spaces at its facilities located in San Carlos, California. The Company currently occupies approximately 113,000 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 25,000 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 January 2021, the Company entered into an amendment of the lease to extend the term for 48 months to October 2027. The combined annual rent for the First Space and Second Space will be $9.3 million commencing in October 2023.

The Company entered into a lease agreement commencing June 2018 for its cord blood tissue storage facility in Tukwila, Washington that covers approximately 10,000 square feet. 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, the Company has subleased the facility and does not intend to exercise its option to renew the facility upon expiration.

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 annual lease payment starts at $1.9 million and will escalate annually commencing in October 2020. An amendment of the San Carlos sublease agreement was entered in February 2021 and the third party surrendered 25,879 rentable square feet in the fourth quarter of 2021.

The Company entered into a lease agreement in November 2020 to lease 11,395 square feet of space located in South San Francisco, California over a 36-month term. The premises will be used for general office, laboratory and research use. The annual lease payment starts at $0.9 million and will escalate annually commencing in December 2021.

As part of the IPR&D asset acquisition in September 2021, the Company inherited a lease for 7,107 square feet of laboratory space in Canada over a 24-month period. The annual lease payment starts at $0.2 million.

The Company has also historically entered into leases of individual workspaces and storage spaces at various locations on both a month-to-month basis without an established lease term, and more recently for certain locations, has committed to terms approximating one to five years. For the facilities without a committed lease term, the Company has elected to not recognize them as right-of-use assets on the condensed consolidated balance sheets as they are all considered short-term leases. For individual workspaces where the committed lease term exceeds one year, the Company has recorded a right-of-use asset on the condensed consolidated balance sheets.

For the six months ended June 30, 2022, the Company had noncash operating activities of $7.5 million primarily related to additional right-of-use assets related to the Austin First Expansion Premises commenced in February 2022 which was accounted for as a new lease under ASC 842. For the six months ended June 30, 2021, the Company had noncash operating activities of $30.1 million related to additional right-of-use assets primarily as a result of the San Carlos lease extension which was accounted for as a modification under ASC 842.

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:

	June 30,		December 31,
	2022		2021
		(in thousands)
Operating lease liabilities, current portion included in other accrued liabilities	$	5,636	$	5,752
Operating lease liabilities, long-term portion		65,417		61,036
Total operating lease liabilities	$	71,053	$	66,788

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. In accordance with ASC 842, 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 June 30, 2022, the weighted-average remaining lease term was 4.77 years and the weighted-average discount rate was 6.20%.

The Company continues to recognize lease expense on a straight-line basis. 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 three months ended June 30, 2022 and 2021, total lease expense of $3.3 million and $2.7 million was recognized in the condensed statements of operations and comprehensive loss, respectively. For the six months ended June 30, 2022 and 2021, total lease expense of $6.5 million and $5.4 million was recognized in the condensed statements of operations and comprehensive loss, respectively. Cash paid for amounts in the measurement of operating lease liabilities totaled $2.8 million and $2.5 million for the three months ended June 30, 2022 and 2021, respectively. Cash paid for amounts in the measurement of operating lease liabilities totaled $5.5 million and $5.0 million for the six months ended June 30, 2022 and 2021, respectively.

The present value of the future annual minimum lease payments under all non-cancellable operating leases as of June 30, 2022 are as follows:

	Operating Leases
	(in thousands)
Year ending December 31:
2022 (remaining 6 months)	$	4,524
2023		11,701
2024		13,169
2025		13,437
2026		13,816
2027 and thereafter		34,100
		90,747
Less: imputed interest		(19,694)
Operating lease liabilities	$	71,053