Leases

3 Months Ended

Mar. 31, 2020

Leases

Leases

H. Leases

The Company currently has two real estate leases. The first is an agreement with CRP/King 830 Winter L.L.C. for the rental of approximately 120,000 square feet of laboratory and office space at 830 Winter Street, Waltham, MA through March 2026. The Company uses this space for its corporate headquarters and other operations. The Company may extend the lease for two additional terms of five years and is required to pay certain operating expenses for the leased premises subject to escalation charges for certain expense increases over a base amount. The Company is actively seeking to sub-lease approximately 80,000 square feet of this space and, during the three months ended March 31, 2020, executed two subleases for approximately 33,000 square feet through the remaining initial term of the lease. The second real estate lease is an agreement with PDM 930 Unit, LLC for the rental of 10,281 square feet of additional office space at 930 Winter Street, Waltham, MA through August 31, 2021. The Company is required to pay certain operating expenses for the leased premises based on its pro-rata share of such expenses for the entire rentable space of the building. The Company is actively seeking to sub-lease this space.

Upon adoption of ASC 842 in January 2019, a ROU asset of $17.6 million and a lease liability of $27.3 million were recorded and are identified separately in the Company’s consolidated balance sheets for the existing operating leases. There was no impact to the consolidated statements of operations. Upon adoption, the amount of the ROU assets recorded was offset by the applicable unamortized lease incentive and straight-line lease liability balances of $9.7 million and, therefore, there was no impact to accumulated deficit. There were no initial direct costs related to the leases to consider. The Company’s operating lease liabilities related to its real estate lease agreements were calculated using a collateralized incremental borrowing rate. The weighted average discount rate for the operating lease liability is approximately 11%. A 100 basis point change in the incremental borrowing rate would result in less than a $1 million impact to the ROU assets and liabilities recorded. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term, which for the three months ended March 31, 2020 and 2019 was $1.0 million and $1.1 million, respectively, and is included in operating expenses in the consolidated statement of operations. During the three months ended March 31, 2019, the Company recorded $559,000 of impairment charges related to its 930 Winter Street lease, which represented the remaining balance of the ROU asset as the likelihood of finding a sub-lessor had diminished significantly as the lease approached termination. Cash paid against operating lease liabilities during the three months ended March 31, 2020 and 2019 was $1.4 million and $1.3 million, respectively. As of March 31, 2020, the Company’s ROU asset and lease liability for operating leases totaled $15.2 million and $24.1 million, respectively, and the weighted average remaining term of the operating leases is approximately six years.

The maturities of operating lease liabilities discussed above are as follows (in thousands):

2020 (nine months remaining)	$	4,125
2021		5,323
2022		5,389
2023		5,510
2024		5,470
Thereafter		6,866
Total lease payments		32,683
Less imputed interest		(8,616)
Total lease liabilities	$	24,067

In addition to the amounts in the table above, the Company is also responsible for variable operating costs and real estate taxes that are expected to approximate $3.1 million per year through March 2026.

Sublease Income

In January, March, and April 2020, the Company executed three agreements to sublease a total of 47,160 square feet of the Company’s leased space at 830 Winter Street, Waltham, MA through March 2026. Two of the three sublease agreements include an early termination option after certain periods of time for an agreed-upon fee. Assuming no early termination option is exercised, the Company will receive approximately $13 million in minimum rental payments over the remaining term of the sublease, which is not included in the operating lease liability table above. The sublessees will also be responsible for their proportionate share of variable operating expenses and real estate taxes.