Leases

12 Months Ended

Dec. 31, 2019

The Company leases real estate, including office and laboratory space. During the year ended, and as of, December 31, 2019, there were no arrangements in which the Company was considered a lessor.

In May 2018, the Company entered into a lease for office space at 200 Smith Street in Waltham, Massachusetts (the Premises). The initial term of the lease expires in November 2029, unless terminated earlier in accordance with the terms of the lease. The Company is entitled to two five-year options to extend. The initial annual base rent is approximately $2.0 million and will increase annually for a total of $22.4 million over the lease term. The Company is obligated to pay its portion of real estate taxes and costs related to the premises, including costs of operations, maintenance, repair, replacement, and management of the new leased premises. The Company is required to maintain a cash balance of $1.1 million to secure a letter of credit associated with the lease. This amount was classified as long-term investment—restricted in the consolidated balance sheet as of December 31, 2019.

Prior to the adoption of ASU 2016-02, the Company was deemed to be the owner of this leased space during the construction period because of certain provisions within the lease agreement. As a result, as of December 31, 2018, the Company capitalized approximately $11.9 million (equal to the estimated cost of its leased portion of the premises) as construction-in-progress within property and equipment, net and recorded a corresponding build-to-suit facility lease financing obligation. Under ASU 2016-02, the Company was no longer considered the owner of the leased space and therefore the build-to suit asset and corresponding liabilities at December 31, 2018 were reversed as of the date of adoption on January 1, 2019 as the lease commencement date had not yet been met. In October 2019, the lease commencement date under ASU 2016-02 was met and resulted in the addition of an operating lease asset of $21.2 million and corresponding lease liability of $17.0 million in the fourth quarter of 2019. The Premises became the Company's new headquarters location in October 2019.

As of December 31, 2019, the Company had two five-year lease agreements for office and laboratory space in Lawrence, Kansas that began on January 1, 2016 and expire on December 31, 2020, and the Company had three leases for additional office space in Lawrence, Kansas that expire in December 2020. The lease agreements contain options to extend the lease terms however these extensions were not included in the right-of-use assets and lease liabilities as they were not reasonably certain of being exercised.

The Company is also currently subject to the remainder of a six-month lease extension that expires in March 2020 in Waltham, Massachusetts to accommodate short-term temporary needs, which was entered into during 2019. In addition, in August 2018, the Company entered into a nine-month sublease for additional temporary office space in Waltham, Massachusetts that expired in June 2019. The Company also had a three-year sublease agreement for office space in Waltham, Massachusetts that began in September 2016 and expired in September 2019. The expense related to these subleases are included in short-term lease costs for the year ended December 31, 2019.

The Company's leases require the Company to pay for certain operating expenses based on actual costs incurred and therefore, as the amounts are variable in nature, are expensed in the period incurred and included in variable lease costs for the year ended December 31, 2019. Payment escalations specified in the lease are recognized on a straight-line basis over the lease terms.

All of the Company's leases qualify as operating leases. The following table summarizes the presentation of the Company's operating leases in the consolidated balance sheet:


(in thousands)	As of December 31, 2019
Operating lease assets	$	21,158

Current operating lease liabilities	$	1,747
Operating lease liabilities, net of current portion	15,904
Total operating lease liabilities	$	17,651

The components of lease expense were as follows:


	Year Ended December 31,
(in thousands)	2019
Operating lease cost	$	1,223
Short-term lease cost	520
Variable lease cost	427
Total lease expense	$	2,170

Future annual minimum lease payments under operating leases are as follows:


(in thousands)	As of December 31, 2019
2020	$	2,646
2021	2,088
2022	2,132
2023	2,177
2024	2,221
Thereafter	11,562
Total future minimum lease payments	22,826
Less: imputed interest	(5,175)
Total operating lease liabilities	$	17,651

As previously disclosed in the Company's 2018 Annual Report on Form 10-K and under the previous lease accounting standard, ASC 840, Leases, the Company recorded rent expense of $1.1 million and $0.6 million during the years ended December 31, 2018 and 2017, respectively, and the following table summarizes the future minimum lease payments due under the operating leases as of December 31, 2018:


(in thousands)	As of December 31, 2018
2019	$	726
2020	333
Total	$	1,059

The weighted-average remaining lease term and weighted-average discount rate of the Company's operating leases are as follows:


	As of December 31, 2019
Weighted-average remaining lease term in years	9.63
Weighted-average discount rate	5.36	%

Supplemental disclosure of cash flow information related to the Company's operating leases included in cash flows used in operating activities in the consolidated statement of cash flows were as follows:


	Year Ended December 31,
(in thousands)	2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	532
Operating lease liabilities arising from obtaining operating lease assets	$	17,144

In April 2019, the Company amended its lease for office space at the Premises to add an additional 38,003 square feet of space for a total of 82,346 square feet of space, which is expected to commence in the second quarter of 2020. The initial term of the lease for the additional space will expire in November 2029 unless terminated earlier in accordance with the terms of the lease and the Company is entitled to two five-year options to extend the lease. The initial annual base rent for the additional space is approximately $1.9 million and will increase annually for a total of $18.2 million over the lease term. The Company will be required to pay its share of operating expenses, taxes, and other expenses related to the additional leased premises. The Company will be required to increase the amount of cash to secure the letter of credit by $0.9 million upon substantial completion of the additional premises. As of December 31, 2019, the lease commencement date under ASU 2016-02 had not yet been met.