As discussed in Note 2, on January 1, 2022, the Company adopted ASU 2016-02 issued by the FASB related to leases that outlines a comprehensive lease accounting model and supersedes the prior lease guidance. The Company adopted this guidance using the modified retrospective approach and elected the optional transition method. As a result, comparative prior periods in the Company’s consolidated financial statements are not adjusted for the impacts of the new standard.

Adoption of ASU 2016-02 resulted in the recording of additional net lease assets and lease liabilities of approximately $13,001 and $27,723, respectively, as of January 1, 2022. Incremental borrowing rates as of January 1, 2022, the date the new standard was adopted, were used to calculate the present value of the Company’s lease portfolio as of that date. Leases previously identified as build-to-suit leases were derecognized pursuant to the transition guidance provided for build-to-suit leases in ASU 2016-02. The impact of the derecognition of the build-to-suit lease was a net reduction of $3,993 to accumulated deficit calculated as of January 1, 2022. The standard did not materially impact the consolidated net income (losses) or operating cash flows.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company’s lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date to determine the appropriate discount rate by multiple asset classes. Variable lease payments that are not based on an index or that result from changes to an index subsequent to the initial measurement of the corresponding lease liability are not included in the measurement of lease ROU assets or liabilities and instead are recognized in earnings in the period in which the obligation for those payments is incurred. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise any such options. Lease expense is recognized on a straight‐line basis over the expected lease term. Lease expense was $3,803 and $1,132 for the years ended December 31, 2022 and 2021, respectively.

In September 2017, Legacy Celularity entered into an operating lease for office space in Warren, New Jersey, which was set to expire in 2022. In connection with entering into this lease agreement, Legacy Celularity issued a letter of credit of $481, which is classified as restricted cash (non-current) on the consolidated balance sheets as of December 31, 2020. During the second quarter of 2021, the full $481 was drawn by the landlord. During the third quarter of 2021, the lease for office space in Warren, New Jersey was terminated.

On September 10, 2019, Legacy Celularity extended the operating lease for the office and laboratory space in Cedar Knolls, New Jersey on a month-to-month basis. Beginning November 1, 2019, Legacy Celularity began paying the landlord the base annual rent and all additional rent at a 2% increase, pro-rated monthly for each month it remains in possession of the premises. Monthly lease payments of $15 due under the lease included base rent and ancillary charges. Effective October 31, 2022, the Company terminated the Cedar Knolls monthly lease.

On March 13, 2019, Legacy Celularity entered into a lease agreement for a 147,215 square foot facility consisting of office, manufacturing and laboratory space in Florham Park, New Jersey, which expires in 2036. The Company has the option to renew the term of the lease for two additional five-year terms so long as the lease is then in full force and effect. The lease term commenced on March 1, 2020 subject to an abatement of the fixed rent for the first 13 months following the lease commencement date. The initial monthly base rent is approximately $230 and will increase annually. The Company is obligated to pay real estate taxes and costs related to the premises, including costs of operations, maintenance, repair, replacement and management of the new leased premises. In connection with entering into this lease agreement, Legacy Celularity issued a letter of credit of $14,722 which is classified as restricted cash (non-current) on the consolidated balance sheets as of December 31, 2022 and 2021. The lease agreement allows for a landlord provided tenant improvement allowance of $14,722 to be applied to the costs of the construction of the leasehold improvements.

The Company is not the legal owner of the leased space. However, in accordance with prior lease guidance under ASC 840, Leases, the Company was deemed to be the owner of the leased space, including the building shell, during the construction period because of the Company’s expected level of direct financial and operational involvement in the substantial tenant improvement. As discussed in Note 2, leases previously identified as build-to-suit leases were derecognized pursuant to the transition guidance provided for build-to-suit leases in ASU 2016-02.

The impact of the adoption of ASC 842 is as follows:


	Balance as of December 31, 2021			Adjustments due to adoption of ASC 842			Balance as of January 1, 2022
Assets
Property and equipment, net	$	90,625		$	(12,421	)	$	78,204
Operating lease right-of-use-assets		-			13,001			13,001
Liabilities
Current lease liabilities - operating		-			-			-
Current portion of financing obligation		3,051			(3,051	)		-
Noncurrent lease liabilities - operating		-			27,723			27,723
Financing obligations		28,085			(28,085	)		-
Stockholders' equity
Accumulated deficit	$	(663,681	)	$	3,993		$	(659,688	)

The components of the Company's lease costs are classified on its consolidated statements of operations as follows:


	Year Ended December 31,
	2022
Operating lease cost	$	3,038
Variable lease cost		1,598
Total operating lease cost	$	4,636
Short term lease cost	$	126

The table below shows the cash and non-cash activity related to the Company's lease liabilities during the year ended December 31, 2022:


	Year Ended December 31,
	2022
Cash paid related to lease liabilities:
Operating cash flows from operating leases	$	2,834

Non-cash lease liability activity:
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	-

As of December 31, 2022, the maturities of the Company’s operating lease liabilities were as follows:


2023	$	2,895
2024		2,969
2025		3,042
2026		3,116
2027		3,190
Thereafter		70,341
Total lease payments		85,553
Less imputed interest		(57,568	)
Total	$	27,985

As of December 31, 2022, the weighted average remaining lease term of the Company’s operating lease was 23.3 years, and the weighted average discount rate used to determine the lease liability for the operating lease was 11.12%.