In July 2022, the Company entered into a new operating lease agreement for 57,902 square feet of office and laboratory space in Rockville, Maryland for a term of approximately 12.9 years at inception with remaining undiscounted minimum lease payments of approximately $33.7 million as of June 30, 2023. The original Rockville lease contained annual rent escalation and rent abatement clauses as well as an allowance of approximately $12.1 million for tenant improvements. During the six months ended June 30, 2023, the landlord and the Company agreed to substitute $2.8 million of the tenant improvement allowance for cancellation of the rent abatement period. The change was accounted for as a lease modification and the Company recorded an increase in the right-of-use asset and lease liability of $1.3 million. The Company consulted a qualified third-party valuation specialist and determined an incremental borrowing rate of 10.2% to be used as the discount rate for re-measuring the related operating lease liabilities on the modification date. The Rockville lease provides for optional two five-year extensions. The optional period is not included in the lease term used to determine the ROU asset or lease liability associated with this lease as the Company did not consider it reasonably certain it would exercise the option.

In May 2022, the Company entered into a new operating lease agreement for 51,822 square feet of office and laboratory space in Redwood City, California for a term of approximately 11.7 years at inception with remaining undiscounted minimum lease payments of approximately $54.8 million as of June 30, 2023. The Redwood City lease contains annual rent escalation and rent abatement clauses as well as an allowance of approximately $9.8 million for tenant improvements. The Redwood City lease provides for an optional five-year extension. The optional period is not included in the lease term used to determine the ROU asset or lease liability associated with this lease as the Company did not consider it reasonably certain it would exercise the option. The Company consulted a qualified third-party valuation specialist and determined an incremental borrowing rate of 8.5% to be used as the discount rate for measuring the related operating lease liabilities.

The Company also leases office and laboratory space in Gaithersburg, Maryland that has a term that expires in 2030 unless renewed. This operating lease agreement contains rent escalation, rent abatement clauses, tenant improvement allowances, and optional renewal clauses.

All three operating leases include variable lease payments, which are primarily related to common area maintenance, taxes, and utility charges. The Company also has short-term operating leases with a term of one year or less.

The Lonza SOW entered into in February 2022 with Lonza contains an embedded lease as the Company has the exclusive use of, and control over, a portion of the manufacturing facility and equipment of the supplier during the contractual term of the manufacturing arrangement. Lease commencement occurred during the three months ended September 30, 2022 when the applicable manufacturing facility and equipment became available for cGMP manufacturing under the Company’s exclusive use and control. The arrangement provides the Company the ability to early terminate for any reason upon 12 months prior notification to Lonza. The Company did not consider it reasonably certain it would terminate the arrangement when determining the lease term. The arrangement expires in December 2024.

The Company elected the practical expedient to combine the lease component and the non-lease components associated with the lease component as a single lease component, except as related to the non-lease component associated with purchase of inventory. The related ROU assets represent assets acquired for research and development activities with no alternative future use and therefore were immediately expensed.

The terms and conditions included in the Lonza SOW are subject to change due to the nature of the services provided under the manufacturing arrangement. The Company evaluated such changes during the six months ended June 30, 2023 and determined they resulted in a modification of the existing lease. The Company remeasured and reallocated the remaining consideration in the contract and reassessed the classification at the modification date.

The Company’s total lease costs were as follows (in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,
	2023			2022		2023		2022
Finance lease costs:
Right-of-use assets with no alternative future use	$	(443	)	$	—	$	1,262	$	—
Amortization of right-of-use assets		25		—			50	—
Interest on lease liabilities		880		—			1,906	—
Operating lease costs		1,354			664		3,068		827
Short-term lease costs		8			380		16		757
Variable lease costs		1,707			152		3,142		166
Total lease costs	$	3,531		$	1,196	$	9,444	$	1,750

Future minimum lease payments were as follows (in thousands) as of June 30, 2023:


	Operating Leases			Finance Leases
Remainder of 2023	$	2,830		$	24,616
2024		7,554			24,722
2025		8,161		—
2026		8,412		—
2027		8,672		—
2028		8,939		—
Thereafter		49,934		—
Total lease payments		94,502			49,338
Less:
Tenant improvement incentive		(12,864	)	—
Imputed interest		(34,889	)		(2,452	)
Present value of total lease liabilities	$	46,749		$	46,886

Supplemental cash flow information related to leases is as follows (in thousands):


	Six Months Ended June 30,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	3,286	$	—
Operating cash flows from operating leases		1,519		773
Financing cash flows from finance leases		8,307	—
Right-of-use assets obtained in exchange for new finance lease liabilities		1,702	—
Right-of-use assets obtained in exchange for new operating lease liabilities		1,296		27,722