LEASES

9 Months Ended

Sep. 30, 2020

As of September 30, 2020, the Company had two operating leases with Kilroy Realty, L.P. (the "Landlord") for office space located in San Diego, California. The Company currently occupies the office space subject to the first lease, originally signed in July 2016 and later amended in July 2017 and March 2019. In April 2019, the Company entered into a second office lease with the Landlord, which was subsequently amended in May 2020, for office space in an adjacent building located in San Diego, California. The Company plans to consolidate its corporate headquarters into the new lease space beginning in late 2020 and into early 2021.

As a condition of the new lease, the Company has been granted an existing premises continuation option to continue leasing all or a portion of the currently occupied office space, in addition to the new lease space. On February 7, 2020, the Company elected to forgo this continuation option by notifying the Landlord of its intention to vacate the premises of its existing lease. The abandonment of this leased office space, which was originally scheduled to expire in July 2024, coincides with the Company’s expected occupancy of the new office lease space in the adjacent building per the office lease effective April 2019. The Company estimates that it will fully vacate the existing leases in the first quarter of 2021, through which time the Company is obligated to pay all base rent, operating expenses and other obligations due under the existing lease.

Coinciding with the notice delivered to the Landlord, the Company recorded an adjustment to the ROU ("Right-of-use") asset and lease liability in the first half of 2020 to reflect the impending expiration of the existing lease. The remeasurement of the lease liability resulted in a $7.5 million adjustment to the lease liability and ROU asset. The remeasured straight-line expense will be amortized over the revised lease term along with acceleration of related lease incentives.

The ROU asset and lease liability related to the new office lease is established when the Company is granted access to the premises and has the ability to direct its use, which has occurred in phases over 2020 as leased spaces became available. As such, the ROU asset for the new lease has been established prior to the extinguishment of the ROU asset and lease liability for the existing lease, resulting in an overlap of ROU assets during the interim period between inception of the new lease and the expiration of the old lease. In June 2020, the Landlord delivered possession of a portion of the new lease space for the purpose of construction of leasehold improvements. Coinciding with our ability to direct the use of that space, and utilizing a discount rate equal to our borrowing rate, the Company has established a ROU asset totaling $8.9 million and a lease liability totaling $8.8 million. The ROU asset and lease liability are offset by lease incentives associated with tenant improvement allowances totaling $2.0 million. In September 2020, the Landlord delivered possession of the remainder of the new lease space. Coinciding with our ability to direct the use of that additional space, and utilizing a discount rate equal to our borrowing rate, the Company established another ROU asset and lease liability, each of which totaled $25.7 million. Both the ROU asset and lease liability are offset by lease incentives associated with tenant improvement allowances totaling $5.9 million.

The initial term of the new lease is 7 years, 7 months, through August 2028, and the Landlord has granted the Company an option to extend the term of the lease by a period of 5 years. At this time, it is not reasonably certain that we will extend the term of the lease and therefore the renewal period has been excluded from the aforementioned ROU asset and lease liability measurements. The measurement of the lease term occurs from the February 2021 planned occupancy date of the primary spaces delivered in September 2020. The aggregate base rent due over the initial term of the lease is approximately $49.5 million, which consists of $13.0 million for the space delivered in June 2020, and $36.5 million for the space delivered in September 2020.

Following is a schedule of the future minimum rental commitments for our operating leases reconciled to the lease liability and ROU asset as of September 30, 2020 (in thousands):


	September 30, 2020
2020	$	603
2021	2,412
2022	6,020
2023	6,200
2024	6,386
Thereafter	25,113
Total undiscounted future minimum payments	46,734
Lease incentives payable by lessor	(6,884)
Present value discount	(11,130)
Total lease liability	28,720
Unamortized lease incentives, less incentives payable by lessor	(1,147)
Cash payments in excess of straight-line lease expense	(1,266)
Total ROU asset	$	26,307

As of September 30, 2020, the ROU asset of $26.3 million was recorded to the Condensed Consolidated Balance Sheets as non-current Other Assets.

As of September 30, 2020, the current and non-current portions of the lease liability were recorded to the Condensed Consolidated Balance Sheets as follows (in thousands):


	September 30, 2020
Other current liabilities	$	798
Other non-current liabilities	27,922
Total lease liabilities	$	28,720

For the three and nine months ended September 30, 2020 and 2019, the Company recorded $0.7 million and $0.7 million, respectively, and $0.5 million and $1.8 million, respectively, in expense related to operating leases, including amortized tenant improvement allowances.