Leases

9 Months Ended

Sep. 30, 2019

In August 2017, we entered into a Lease Agreement (the Mission Bay Lease) with ARE-San Francisco No. 19, LLC (ARE) and terminated our sublease with Pfizer, Inc., effectively extending our lease term from 2020 to 2030 for our 145,085 square foot corporate office and R&D facility located at 455 Mission Bay Boulevard, San Francisco, California (the Mission Bay Facility). The term of the Mission Bay Lease commenced on September 1, 2017, and will expire on January 31, 2030, subject to our right to extend the term of the lease for two consecutive five-year periods, which we have excluded from our determination of the lease term. The monthly base rent for the Mission Bay Facility will escalate over the term of the lease at various intervals. During the term of the Mission Bay Lease, we are responsible for paying our share of operating expenses specified in the lease, including utilities, common area maintenance, insurance and taxes. The Mission Bay Lease also obligates us to rent from ARE a total of an additional approximately 8,000 square feet of space at the Mission Bay Facility. During the nine months ended September 30, 2019, ARE delivered 10,729 square feet of space, and therefore we recognized right-of-use assets and lease liabilities of $5.0 million for the space. The Mission Bay Lease includes various covenants, indemnities, defaults, termination rights, security deposits and other provisions customary for lease transactions of this nature.

In May 2018, we entered into a Lease Agreement (the Third Street Lease) with Kilroy Realty Finance Partnership, L.P. (Kilroy) to lease 135,936 square feet of space located at 360 Third Street, San Francisco, California (the Third Street Facility) from June 2018 to January 31, 2030, subject to our right to extend the term for a consecutive five-year period, which we have excluded from our determination of the lease term. Kilroy delivered an initial 1,726 square feet in June 2018, a total of 67,105 square feet for two additional spaces in December 2018, and the final 67,105 square feet for four spaces in August 2019. As a result of the delivery of the final spaces during the nine months ended September 30, 2019, we recognized an additional right-of-use asset and lease liability of $51.0 million. The Third Street Lease provides us additional facilities to support our San Francisco-based R&D activities. Our fixed monthly base rent on an industrial gross lease basis includes certain expenses and property taxes paid directly by the landlord and will escalate each year over the term at specified intervals. We have a one-time right of first offer with respect to certain additional rental space at the Third Street Facility. The Third Street Lease includes various covenants, indemnities, defaults, termination rights, security deposits and other provisions customary for lease transactions of this nature.

The components of lease costs, which we include in operating expenses in our Condensed Consolidated Statements of Operations, were as follows (in thousands):



	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018
Operating lease cost	$	4,116	$	1,927	$	10,030	$	5,651
Variable lease cost	1,485		1,096		4,539		3,371
Total lease costs	$	5,601	$	3,023	$	14,569	$	9,022

During the nine months ended September 30, 2019, we paid $5.1 million for amounts included in the measurement of lease liabilities, which we include in net cash provided by (used in) operating activities in our Condensed Consolidated Statement of Cash Flows.

As of September 30, 2019, the maturities of our operating lease liabilities were as follows (in thousands):



Year ended December 31,
2019 (Three months ended)	$	2,400
2020	15,283
2021	19,026
2022	19,633
2023	20,257
2024	20,899
2025 and thereafter	116,881
Total lease payments	214,379
Less: portion representing interest	(56,621		)
Less: lease incentives	(3,341		)
Operating lease liabilities	154,417
Less: current portion	(9,318		)
Operating lease liabilities, less current portion	$	145,099

As of September 30, 2019, the weighted-average remaining lease term is 10.3 years and the weighted-average discount rate used to determine the operating lease liability was 5.9%.