Leases

12 Months Ended

Dec. 31, 2019

Operating Leases

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, effectively extending our lease term from 2020 to 2030 for our 148,263 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 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 costs and taxes. During the year ended December 31, 2019, ARE delivered 13,907 square feet of space, and therefore we recognized right-of-use assets and lease liabilities of $6.7 million for the space. The Mission Bay Lease also obligates us to rent from ARE a total of an additional approximately 4,940 square feet of space at the Mission Bay Facility at specified delivery dates. 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 in December 2018, and the final 67,105 square feet in August 2019. As a result of the delivery of the final spaces during the year ended December 31, 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 annual 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.

We recognize rent expense for these operating leases on a straight-line basis over the lease period. The components of lease costs, which we include in operating expenses in our Condensed Consolidated Statements of Operations, were as follows (in thousands):



	Year Ended December 31,
	2019		2018		2017
Operating lease cost	$	14,697	$	7,972	$	4,515
Variable lease cost	6,408		4,497		3,077
Total lease costs	$	21,105	$	12,469	$	7,592

During the year ended December 31, 2019, we recorded operating lease expense of $14.7 million and paid $8.4 million of operating lease payments related to our lease liabilities, which we include in net cash provided by (used in) operating activities in our Consolidated Statement of Cash Flows.

As of December 31, 2019, the maturities of our operating lease liabilities were as follows (in thousands):



Year ending December 31,
2020	$	14,571
2021	19,219
2022	19,832
2023	20,461
2024	21,110
2025 and thereafter	118,058
Total lease payments	213,251
Less: portion representing interest	(54,741		)
Less: lease incentives	(3,264		)
Operating lease liabilities	155,246
Less: current portion	(12,516		)
Operating lease liabilities, less current portion	$	142,730

As of December 31, 2019, the weighted-average remaining lease term is 10.1 years and the weighted-average discount rate used to determine the operating lease liability was 5.9%.

Under the historical guidance of ASC 840, our deferred rent balance at December 31, 2018 totaled $9.3 million and our future minimum lease payments for our operating leases at December 31, 2018 were as follows (in thousands):



Year ending December 31,
2019	$	7,914
2020	10,617
2021	13,649
2022	14,117
2023	14,599
2024 and thereafter	98,315
Total future minimum lease payments	$	159,211