Leases

9 Months Ended

Sep. 30, 2022

In July 2017, the Company entered into a lease of office and laboratory space for its headquarters at 490 Arsenal Way, Suite 200 in Watertown, Massachusetts, or the Watertown Lease. In November 2021, the Company entered into an amendment to the Watertown Lease, or the Amended Lease. The Amended Lease serves to extend the lease term of the Company’s existing leased space, or the Existing Leased Space, and provides additional office and laboratory space in Suite 120, or the Newly Leased Space. The lease for the Newly Leased Space commenced in January 2022 and the Company’s obligation to pay rent on the Newly Leased Space commenced in March 2022, with the amount of this new rent obligation added to the Company’s continuing obligation to pay rent on the Existing Leased Space. The Amended Lease terminates in March 2032, which is 10 years from the rent commencement date for the Newly Leased Space. The Amended Lease is subject to fixed rate rent escalations, provides for up to $2.6 million in tenant improvements reimbursable to the Company, and provides an option for the Company to extend the lease term of the Amended Lease for one additional five-year period. Upon executing the Amended Lease, the Company increased the amount of its existing collateral to $3.3 million, which is recorded as restricted cash on the accompanying condensed consolidated balance sheets as of September 30, 2022. In addition to rent, under the terms of the Amended Lease, the Company is also responsible for paying its pro rata share of costs incurred for common area maintenance, real estate taxes and property insurance related to the leased space, including both the Existing Leased Space and, as of January 2022, the Newly Leased Space, which amounts are accounted for as variable lease costs.

Accounting for the Amended Lease

As the Amended Lease extends the term of the Existing Leased Space and provides access to the Newly Leased Space, in accordance with the provisions of ASC 842, the Company accounted for the Amended Lease as two separate contracts: (i) modification of the existing lease agreement to extend the lease term of the Existing Leased Space, and (ii) new lease agreement for the right-of-use of the Newly Leased Space.

As noted above, the lease for the Newly Leased Space commenced in January 2022. As a result, the Company recorded a right-of-use asset of $44.4 million, and a corresponding lease liability of $44.1 million for the Newly Leased Space. The calculation of the lease liability and the right-of-use asset of the Newly Leased Space does not include the additional five-year period option provided under the Amended Lease as the Company does not believe there is reasonable certainty that

the option will be exercised. As stated above, the Amended Lease provides for up to $2.6 million of tenant improvement allowance. As of September 30, 2022, the Company has incurred the full $2.6 million in qualified capital expenditures that are reimbursable by the landlord.

In May 2022, the Company entered into a sublease agreement with a third party, or the Sublease, of a portion of the office and laboratory space in Suite 200 at 490 Arsenal Way, Watertown, Massachusetts. The term of the Sublease ends in June 2025.

The elements of lease costs were as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Lease cost:
Operating lease cost	$	2,508	$	637	$	7,523	$	1,912
Variable lease cost	499		245		1,472		613
Sublease income	(633)		—		(845)		—
Total lease cost	$	2,374	$	882	$	8,150	$	2,525

The following table summarizes the lease term and discount rate applied in arriving at the lease liability:


	September 30, 2022		December 31, 2021
Remaining lease term	9.4 years		10.2 years
Discount rate	5.3	%	5.2	%

Future lease payments under non-cancelable leases as of September 30, 2022 for each of the years ending December 31 are as follows (in thousands):


Undiscounted lease payments:
Remaining 2022	$	2,088
2023	8,571
2024	8,828
2025	9,093
2026	9,366
Thereafter	61,759
Total undiscounted lease payments	99,705
Less: imputed interest	(22,952)
Total operating lease liability	$	76,753