Leases Leases

12 Months Ended

Dec. 31, 2019

We have entered into various long-term non-cancelable lease arrangements for our facilities and equipment expiring at various times through 2032. Certain of these arrangements have free rent periods or escalating rent payment provisions, which we recognize lease cost under such arrangements on a straight-line basis over the life of the leases. We have two campuses in Massachusetts, our Cambridge facility and our Moderna Technology Center, or MTC, located in Norwood.

Operating Leases

Cambridge facility

We occupy a multi-building campus in Technology Square in Cambridge, MA with a mix of offices and research laboratory space totaling approximately 200,000 square feet. Our Cambridge facility leases have expiry ranges from 2020 to 2029.

In August 2019, we entered into an amendment to our lease agreements to consolidate our Technology Square space in Cambridge, MA. This included entering into a forward-starting lease agreement starting in January 2020 to acquire approximately 50,000 square feet of additional space at 200 Technology Square including space previously occupied under a sublease which expired on December 31, 2019. We will also completely early-exit our leased space of approximately 60,000 square feet at 500 Technology Square by May 2020. In addition, our current 200 Technology Square lease has been extended for two years to 2029. The amendment provides an additional aggregated tenant improvement allowance of $3.5 million for the design and construction of improvements at 200 Technology Square.

In May 2016, we entered into a lease agreement for 124,760 square feet of office and laboratory space at 200 Technology Square in Cambridge, Massachusetts. The lease commenced on September 1, 2016, with the base rent subject to increases over an 11-year term. We have occupied the premises in six phases from September 2016 to January 2020. We have the option to extend the lease term for two extension periods of five years each, at market-based rates. In addition to rent payments, the lease also provides that we pay our proportionate share of operating expenses and taxes during the term of the lease. As the amount of square footage that we lease increases over the term of the lease, we have recognized each phase’s total rent payments on a straight-line basis over the respective lease term. The lease provides us with an initial tenant allowance of $10.00 per square foot against which costs incurred are capitalized as leasehold improvements. We have provided a security deposit of $1.9 million, that is classified as non-current restricted cash in the consolidated balance sheet. As we occupy additional space through the six phases of occupancy, the security deposit will increase to $2.2 million. In December 2018, in relation to the expansion of space from the agreement entered in May 2016, we entered into sublease agreements for 34,268 square feet to expand our office and laboratory space at 200 Technology Square.

In August 2015, we entered into a facility lease agreement for 61,618 square feet of office and laboratory space at 500 Technology Square. The lease commenced in April 2016, with rental fees beginning at a rate of $3.9 million per annum and escalating over the six-year term of the lease. The lease provides a $3.1 million tenant improvement allowance against which costs incurred are capitalized as leasehold improvements. The lease also provides that we pay our proportionate share of operating expenses and taxes during the term of the lease. We have provided a security deposit of $1.0 million, that is classified as current restricted cash in the consolidated balance sheet as of December 31, 2019.

Moderna Technology Center North (MTC North)

In February 2019, we entered into a new lease agreement for office and laboratory space of approximately 200,000 square feet, MTC North, located in Norwood, MA. The lease commenced in the second quarter of 2019 and had an initial expiration date of 2031. We have the option to extend the lease for up to four additional five-year terms. Contemporaneously, we entered into an agreement to sublease approximately 64 percent of the leased space to a third party. We have no rent obligations to the landlord for the space occupied by the third party. All sublease payments from the third party are paid directly to the landlord. The sublease can expire between May 2020 and February 2021 at the third party’s option.

In April 2017, we entered into a lease agreement for land adjacent to our MTC manufacturing facility (see MTC South below). We determined, for accounting purposes, this land lease should be accounted for separately from the lease entered in August 2016 relating to the building. The lease commenced in April 2017, with rental fees beginning at a rate of $0.3 million per annum and escalating over the thirty-five-year term of the lease.

We record operating lease cost for each of our operating leases on a straight-line basis from lease commencement date through the end of the lease term. Operating lease cost is recorded to operating expenses in our consolidated statements of operations.

Finance Leases

Moderna Technology Center manufacturing facility (MTC South)

In August 2016, we entered into a lease agreement for approximately 200,000 square feet of office, laboratory, and light manufacturing space, MTC South, in Norwood, MA. The lease commencement date for accounting purposes was October 1, 2016. In connection with this lease, the landlord provided a tenant improvement allowance of approximately $24.2 million for costs associated with the design, engineering, and construction of tenant improvements for the building. The lease will expire in September 2032. We have the option to extend the term for two extension periods of ten years each at market-based rents. The base rent is subject to increases over the term of the lease. We have provided a security deposit of $8.9 million that is classified as non-current restricted cash in the consolidated balance sheets as of December 31, 2019.

Pursuant to ASC 842, the MTC South lease is bifurcated into a building lease and a land lease using an estimated incremental borrowing rate as of the lease commencement date. The building lease is classified as a financing lease and the land lease is classified as an operating lease. For accounting purposes, the lease term is determined to be 35 years, which is the non-cancelable period of the lease and includes the optional extension periods as we are reasonably certain that we will exercise the options to extend the lease term. Upon the adoption of ASC 842 at January 1, 2019, we derecognized the assets and liabilities recorded as a result of historical build-to-suit accounting under ASC 840 and recorded financing lease liabilities and financing right-of-use asset associated with the building lease. The financing right-of-use asset is amortized on a straight-line basis to depreciation expense over the remaining lease term. We record interest expense related to the financing lease liabilities in the consolidated statements of operations.

Prior to the adoption of ASC 842, for accounting purposes, we were deemed to be the owner of the building during the construction period as we were involved in the construction project, including having responsibilities for cost overruns for planned tenant improvements that did not qualify as normal tenant improvements under the lease accounting guidance. During the construction period, we capitalized the fair value of the building as of lease commencement along with a corresponding lease financing obligation. We also capitalized project construction costs incurred by us as an asset. Property and equipment, net included $86.4 million and $75.0 million as of December 31, 2018 and 2017, respectively, related to construction in process costs for the building. We completed construction of the building and started our MTC South operation in July 2018. During the third and fourth quarters of 2018, we transferred $161.6 million of construction in process to property and equipment, including the building of $140.4 million. Certain manufacturing equipment and processes were still in progress which have been completed during 2019. The carrying value of the lease financing obligation related to the building, was $33.5 million and $15.7 million, as of December 31, 2018 and 2017, respectively. We recorded $10.5 million and $14.5 million in accrued liabilities in the consolidated balance sheets related to our MTC South property and equipment as of December 31, 2018 and 2017, respectively. During the construction period, we bifurcated our future lease payments pursuant to the lease into: (i) a portion that is allocated to the building; and (ii) a portion that is allocated to the land on which the building is located, which is recorded as rental expense. The fair value of the building and the land were estimated by us with the assistance of a third-party valuation expert and giving consideration to comparable properties. Although we did not begin making lease payments pursuant to the lease until October 2017, the portion of the lease obligation allocated to the land was treated for accounting purposes as an operating lease commencing on October 1, 2016. Upon completion of the construction of the building, we evaluated the lease and determined that it did not meet the criteria for “sale-leaseback” treatment. Accordingly, we depreciated the building and incurred interest expense related to the lease financing obligation recorded in our balance sheet. The portion of the lease obligation allocated to land was treated as an operating lease.

Operating and financing lease right-of-use assets and lease liabilities as of December 31, 2019 and January 1, 2019 (the date of adoption of ASC 842) were as follows (in thousands):



	December 31,		January 1,
	2019		2019
Assets:
Right-of-use assets, operating, net ^{(1) (2)}	$	86,414	$	63,334
Right-of-use assets, financing, net ^{(3) (4)}	9,544		9,853
Total	$	95,958	$	73,187

Liabilities:
Current:
Operating lease liabilities⁽⁵⁾	$	3,584	$	6,455
Non-current:
Operating lease liabilities, non-current	93,675		64,250
Financing lease liabilities, non-current	38,689		37,718
Total non-current lease liabilities	132,364		101,968
Total	$	135,948	$	108,423

_______

⁽¹⁾At December 31, 2019, these assets are real estate related assets, which include land, office and laboratory spaces.

⁽²⁾Net of accumulated depreciation.

⁽³⁾At December 31, 2019, these assets are real estate assets related to the MTC South lease.

⁽⁴⁾Included in property and equipment in the consolidated balance sheets, net of accumulated depreciation.

⁽⁵⁾Included in other current liabilities in the consolidated balance sheets.

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



	December 31,
	2019
Operating lease costs	$	17,015
Financing lease costs:
Amortization of right-of-use assets, financing leases	309
Interest expense for financing lease liabilities	6,557
Total financing lease costs	$	6,866
Variable lease costs	4,399

Total rent expense for the years ended December 31, 2018 and 2017 was $19.1 million and $18.6 million, respectively.

Supplemental cash flow information relating to our leases for the year ended December 31, 2019 was as follows (in thousands):



	December 31,
	2019
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows used in operating leases	$	(16,121	)
Operating cash flows used in financing leases	(5,585		)
Financing cash flows provided by financing leases	971

Operating lease non-cash items:
Right-of-use assets reduced through lease modifications and reassessments	2,717
Right-of-use assets obtained in exchange for operating lease liabilities	34,014

Weighted average remaining lease terms and discount rates as of December 31, 2019 were as follows:



	December 31,
	2019
Remaining lease term:
Operating leases	12 years
Finance leases	33 years
Discount rate:
Operating leases	9.7	%
Finance leases	17.2	%

Future minimum lease payments under non-cancelable lease agreements as of December 31, 2019, were as follows (in thousands):



Fiscal Year	Operating Leases ⁽¹⁾			Financing Leases ⁽¹⁾
2020	$	12,563		$	5,738
2021	13,814			5,894
2022	14,120			6,054
2023	14,365			6,219
2024	14,708			6,387
Thereafter	103,439			264,156
Total minimum lease payments	173,009			294,448
Less amounts representing interest or imputed interest	(75,750		)	(255,759		)	⁽²⁾
Present value of lease liabilities	$	97,259		$	38,689

______

⁽¹⁾Include the optional extensions in the MTC South lease term which represent a total of $10.3 million and $208.5 million un-discounted future lease payments in operating leases and financing leases, respectively.

⁽²⁾Based on an imputed interest rate of 17.2%.

Prior to adoption of ASC 842, future minimum lease payments under non-cancelable operating lease agreements as of December 31, 2018, which were undiscounted and excluded non-lease components, were as follows (in thousands):



Fiscal Year	Minimum Lease Payments
2019	$	20,027
2020	20,404
2021	20,937
2022	20,208
2023	17,235
Thereafter	112,958
Total	$	211,769

______

⁽¹⁾The amounts in the table above do not include any optional extensions in our lease terms.

Leases

Operating Leases

Cambridge facility

Moderna Technology Center North (MTC North)

Finance Leases

Moderna Technology Center manufacturing facility (MTC South)

Operating and financing lease right-of-use assets and lease liabilities as of December 31, 2019 and January 1, 2019 (the date of adoption of ASC 842) were as follows (in thousands):



	December 31,		January 1,
	2019		2019
Assets:
Right-of-use assets, operating, net ^{(1) (2)}	$	86,414	$	63,334
Right-of-use assets, financing, net ^{(3) (4)}	9,544		9,853
Total	$	95,958	$	73,187

Liabilities:
Current:
Operating lease liabilities⁽⁵⁾	$	3,584	$	6,455
Non-current:
Operating lease liabilities, non-current	93,675		64,250
Financing lease liabilities, non-current	38,689		37,718
Total non-current lease liabilities	132,364		101,968
Total	$	135,948	$	108,423

_______

⁽¹⁾At December 31, 2019, these assets are real estate related assets, which include land, office and laboratory spaces.

⁽²⁾Net of accumulated depreciation.

⁽³⁾At December 31, 2019, these assets are real estate assets related to the MTC South lease.

⁽⁴⁾Included in property and equipment in the consolidated balance sheets, net of accumulated depreciation.

⁽⁵⁾Included in other current liabilities in the consolidated balance sheets.

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



	December 31,
	2019
Operating lease costs	$	17,015
Financing lease costs:
Amortization of right-of-use assets, financing leases	309
Interest expense for financing lease liabilities	6,557
Total financing lease costs	$	6,866
Variable lease costs	4,399

Total rent expense for the years ended December 31, 2018 and 2017 was $19.1 million and $18.6 million, respectively.

Supplemental cash flow information relating to our leases for the year ended December 31, 2019 was as follows (in thousands):



	December 31,
	2019
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows used in operating leases	$	(16,121	)
Operating cash flows used in financing leases	(5,585		)
Financing cash flows provided by financing leases	971

Operating lease non-cash items:
Right-of-use assets reduced through lease modifications and reassessments	2,717
Right-of-use assets obtained in exchange for operating lease liabilities	34,014

Weighted average remaining lease terms and discount rates as of December 31, 2019 were as follows:



	December 31,
	2019
Remaining lease term:
Operating leases	12 years
Finance leases	33 years
Discount rate:
Operating leases	9.7	%
Finance leases	17.2	%

Future minimum lease payments under non-cancelable lease agreements as of December 31, 2019, were as follows (in thousands):



Fiscal Year	Operating Leases ⁽¹⁾			Financing Leases ⁽¹⁾
2020	$	12,563		$	5,738
2021	13,814			5,894
2022	14,120			6,054
2023	14,365			6,219
2024	14,708			6,387
Thereafter	103,439			264,156
Total minimum lease payments	173,009			294,448
Less amounts representing interest or imputed interest	(75,750		)	(255,759		)	⁽²⁾
Present value of lease liabilities	$	97,259		$	38,689

______

⁽²⁾Based on an imputed interest rate of 17.2%.



Fiscal Year	Minimum Lease Payments
2019	$	20,027
2020	20,404
2021	20,937
2022	20,208
2023	17,235
Thereafter	112,958
Total	$	211,769

______

⁽¹⁾The amounts in the table above do not include any optional extensions in our lease terms.