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Leases

6 Months Ended

Jun. 30, 2020

We have entered into various long-term non-cancelable lease arrangements for our facilities and equipment expiring at various times through 2032. Certain of these arrangements have free rent periods or escalating rent payment provisions. We recognize lease cost under such arrangements on a straight-line basis over the life of the leases. We have two campuses in Massachusetts, our Cambridge facility and our Moderna Technology Center, or MTC, located in Norwood.

Operating Leases

Cambridge facility

We occupy a multi-building campus in Technology Square in Cambridge, MA with a mix of offices and research laboratory space totaling approximately 175,000 square feet. Our Cambridge facility leases have expiry ranges from 2020 to 2029.

In August 2019, we entered into an amendment to our lease agreements to consolidate our Technology Square space in Cambridge, MA. This included entering into a forward-starting lease agreement starting in January 2020 to acquire approximately 50,000 square feet of additional space at 200 Technology Square including space previously occupied under a sublease which expired on December 31, 2019. In addition, our current 200 Technology Square lease has been extended for two years to 2029. The lease amendment provides an additional aggregated tenant improvement allowance of $3.5 million for the design and construction of improvements at 200 Technology Square. As part of the lease amendment, we completely exited our leased space of approximately 60,000 square feet at 500 Technology Square in May 2020.

In May 2016, we entered into a lease agreement for 125,000 square feet of office and laboratory space at 200 Technology Square in Cambridge, Massachusetts. The lease commenced on September 1, 2016, with the base rent subject to increases over an 11-year term. We have occupied the premises in six phases from September 2016 to January 2020. We have the option to extend the lease term for two extension periods of five years each, at market-based rates. In addition to rent payments, the lease also provides that we pay our proportionate share of operating expenses and taxes during the term of the lease. As the amount of square footage that we lease increases over the term of the lease, we have recognized each phase’s total rent payments on a straight-line basis over the respective lease term. The lease provides us with an initial tenant allowance of $10.00 per square foot against which costs incurred are capitalized as leasehold improvements.

We record operating lease cost for each of our operating leases on a straight-line basis from lease commencement date through the end of the lease term. Operating lease cost is recorded to operating expenses in our consolidated statements of operations.

Finance Leases

Moderna Technology Center manufacturing facility (MTC South)

In August 2016, we entered into a lease agreement for approximately 200,000 square feet of office, laboratory, and light manufacturing space, MTC South, in Massachusetts. The lease commencement date for accounting purposes was October 1, 2016. In connection with this lease, the landlord provided a tenant improvement allowance of approximately $24.2 million for costs associated with the design, engineering, and construction of tenant improvements for the building. The lease will expire in September 2032. We have the option to extend the term for two extension periods of ten years each at market-based rents. The base rent is subject to increases over the term of the lease.

Pursuant to ASC 842, the MTC South lease is bifurcated into a building lease and a land lease using an estimated incremental borrowing rate as of the lease commencement date. The building lease is classified as a financing lease and the land lease is classified as an operating lease. For accounting purposes, the lease term is determined to be 35 years, which is the non-cancelable period of the lease and includes the optional extension periods as we are reasonably certain that we will exercise the options to extend the lease term. Upon the adoption of ASC 842 at January 1, 2019, we derecognized the assets and liabilities recorded as a result of historical build-to-suit accounting under ASC 840 and recorded financing lease liabilities and financing right-of-use asset associated with the building lease. The financing right-of-use asset is amortized on a straight-line basis to depreciation expense over the remaining lease term. We record interest expense related to the financing lease liabilities in the consolidated statements of operations.

Moderna Technology Center North (MTC North)

In February 2019, we entered into a new lease agreement for office and laboratory space of approximately 200,000 square feet, MTC North, located in Massachusetts. The lease commenced in the second quarter of 2019 and had an initial expiration date of 2031. We have the option to extend the lease for up to four additional five-year terms. Contemporaneously, we entered into an agreement to sublease approximately 64 percent of the leased space to a third party. We have no rent obligations to the landlord for the space

occupied by the third party. All sublease payments from the third party are paid directly to the landlord. In May 2020, we entered into an amendment to the lease whereby we exercised an option available in the original lease to receive a tenant improvement allowance in the amount of $22.2 million to be paid back over the term of the lease with interest and extend the term of the lease to 2035. In May 2020, we also amended our MTC North sublease agreement. As the result of that amendment, effective June 1, 2020, we obtained an additional, approximately 28,000 square feet, or 12 percent of the leased space in MTC North and confirmed the sublease will expire in July 2020. The two lease modifications to MTC North in the second quarter of 2020 resulted in a change in lease classification, from operating to finance.

Operating and financing lease right-of-use assets and lease liabilities as of June 30, 2020 and December 31, 2019 were as follows (in thousands):


	June 30,		December 31,
	2020		2019
Assets:
Right-of-use assets, operating, net ^{(1) (2)}	$	92,046	$	86,414
Right-of-use assets, financing, net ^{(3) (4)}	23,702		9,544
Total	$	115,748	$	95,958

Liabilities:
Current:
Operating lease liabilities ⁽⁵⁾	$	4,193	$	3,584
Non-current:
Operating lease liabilities, non-current	99,636		93,675
Financing lease liabilities, non-current	68,136		38,689
Total non-current lease liabilities	167,772		132,364
Total	$	171,965	$	135,948

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⁽¹⁾These assets are real estate related assets, which include land, office and laboratory spaces.

⁽²⁾Net of accumulated depreciation.

⁽³⁾These assets are real estate assets related to the MTC North and MTC South leases.

⁽⁴⁾Included in property and equipment in the condensed consolidated balance sheets, net of accumulated depreciation.

⁽⁵⁾Included in other current liabilities in the condensed consolidated balance sheets.

The components of the lease costs for three and six months June 30, 2020 and 2019 were as follows (in thousands):


	Three Months Ended June 30,			Six Months Ended June 30,
	2020	2019	2020	2019
Operating lease costs	4,379	3,872	9,015	7,742
Financing lease costs:
Amortization of right-of-use assets, financing leases	112	73	185	146
Interest expense for financing lease liabilities	1,877	1,634	3,542	3,257
Total financing lease costs	1,989	1,707	3,727	3,403

Variable lease costs	1,091	1,171	2,498	2,065

Supplemental cash flow information relating to our leases for the six months ended June 30, 2020 and 2019 was as follows (in thousands):


	Six Months Ended June 30, 2020
	2020		2019
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows used in operating leases	$	(7,576)	$	(7,529)
Operating cash flows used in financing leases	(2,954)		(2,774)

Operating lease non-cash items:
Right-of-use assets reduced through lease modifications and reassessments	6,755		219
Right-of-use assets obtained in exchange for operating lease liabilities	16,015		17,416

Finance lease non-cash items:
Right-of-use assets obtained through lease modifications and reassessments	14,326		—
Charges to financing lease obligation	45		483

Future minimum lease payments under non-cancelable operating lease agreements at June 30, 2020, are as follows (in thousands):


Fiscal Year				Operating Leases ⁽¹⁾				Financing Leases ⁽¹⁾
2020	(remainder of the year)	$	6,361			$	3,453
2021		15,117				8,314
2022		15,466				8,497
2023		15,779				8,679
2024		16,168				8,871
Thereafter				110,167				338,525
Total minimum lease payments				179,058				376,339
Less amounts representing interest or imputed interest				(75,228)				(308,203)		⁽²⁾
Present value of lease liabilities				$	103,830			$	68,136

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⁽¹⁾Include the optional extensions in the MTC South lease term which represent a total of $10.3 million and $208.5 million un-discounted future lease payments in operating leases and financing leases, respectively. Include the optional extensions in the MTC North lease term which represent a total of $46.3 million un-discounted future lease payments in the financing leases.

⁽²⁾MTC South interest is based on an imputed interest rate of 17.2%. MTC North interest is based upon an incremental borrowing rate of 8.2%.

Leases