Right-of-use ("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 ("IBR") 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. Rent expense was $892 and $957 for the three months ended September 30, 2023 and 2022, respectively. Rent expense was $2,687 and $2,880 for the nine months ended September 30, 2023 and 2022, respectively.

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 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 condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022. 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.

On September 14, 2023, the Company entered into a lease amendment on the Company's Florham Park, New Jersey facility to reduce the letter of credit by approximately $4,900 for a new letter of credit in the amount of $9,883 in exchange for higher base rental payments of approximately $400 per year, effective October 1, 2023. The new letter of credit account settled on October 17, 2023, and reduced the Company's restricted cash allowing for funds to be used for general corporate purposes. The Company evaluates changes to the terms and conditions of a lease contract to determine if they result in a new lease or a modification of an existing lease. The Company accounted for the lease amendment as a modification since the change in lease payments did not represent additional ROU assets. The Company reassessed the IBR, remeasured the lease liability and ROU asset on the modification date of September 14, 2023. As a result, the Company recorded a decrease to the ROU asset and related lease liability in the amount of $2,083 on the condensed consolidated balance sheets reflecting a higher IBR due to lower Company credit rating.

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


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Operating lease cost	$	759	$	759	$	2,278	$	2,278
Variable lease cost		320		448		911		1,140
Total operating lease cost	$	1,079	$	1,207	$	3,189	$	3,418
Short term lease cost	$	-	$	46	$	-	$	126

The table below shows the cash and non-cash activity related to the Company’s lease liabilities during the period:


	For the Nine Months Ended September 30,
	2023		2022
Cash paid related to lease liabilities:
Operating cash flows from operating leases	$	2,168	$	2,125

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

As of September 30, 2023, the maturities of the Company’s operating lease liabilities were as follows:


2023 (remaining three months)	$	826
2024		3,378
2025		3,452
2026		3,526
2027		3,599
2028		3,673
Thereafter		84,568
Total lease payments		103,022
Less imputed interest		(76,948	)
Total	$	26,074

As of September 30, 2023, the weighted average remaining lease term of the Company’s operating lease was 22.5 years, and the weighted average discount rate used to determine the lease liability for the operating lease was 14.24%.