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Leases

12 Months Ended

Dec. 31, 2019

Finance Leases

The Company’s finance lease assets and liabilities primarily relate to its corporate headquarters in Boston and research site in San Diego (the “Buildings”). These Buildings are classified as finance leases because the present value of the sum of the lease payments associated with the Buildings exceeds substantially all of the fair value of the Buildings. The Company also has outstanding finance leases for equipment.

Prior to the adoption of ASC 842 on January 1, 2019, the Company was deemed for accounting purposes to be the owner of the Buildings during their construction periods and recorded project construction costs incurred by its landlords. Upon completion of the Buildings, the Company determined that the underlying leases did not meet the criteria for “sale-leaseback” treatment. Accordingly, the Company depreciated the Buildings over 40 years and recorded interest expense associated with the financing obligations for the Buildings. The Company bifurcated the lease payments pursuant to the Buildings into (i) a portion that was allocated to the Buildings and (ii) a portion that is allocated to the land on which the Buildings were constructed. The portion of the lease obligations allocated to the land was treated as an operating lease.

Pursuant to ASC 842, the Company adjusted the amounts recorded on its consolidated balance sheet as of January 1, 2019 for the Buildings to reflect the present value of the lease payments over the remaining lease term related to the Buildings. The finance lease assets associated with the Buildings are amortized to depreciation expense using the straight-line method over the remaining lease term, which is significantly shorter than the Buildings’ useful lives. The Company continues to record interest expense associated with the finance lease liabilities for the Buildings.

Corporate Headquarters

In 2011, the Company entered into two lease agreements, pursuant to which the Company leases approximately 1.1 million square feet of office and laboratory space in two buildings in Boston, Massachusetts for a term of 15 years. Base rent payments commenced in December 2013, and will continue through December 2028. The Company utilizes this initial period as its lease term. The Company has an option to extend the lease term for an additional ten years.

San Diego Lease

In 2015, the Company entered into a lease agreement pursuant to which the Company leases approximately 170,000 square feet of office and laboratory space in San Diego, California for a term of 16 years. Base rent payments commenced in the second quarter of 2019, and will continue through May 2034. The Company utilizes this initial period as its lease term. The Company has an option to extend the lease term for up to two additional five-year terms. The Company placed this building into service in the second quarter of 2018.

Operating Leases

The Company’s operating leases relate to its real estate leases that are not classified as finance leases.

Aggregate Lease Information Related to the Application of ASC 842

The following information is disclosed in accordance with ASC 842, which became effective January 1, 2019. The components of lease cost recorded in the Company’s consolidated statement of operations were as follows:



	2019

Operating lease cost	$	11,972
Finance lease cost
Amortization of leased assets	49,778
Interest on lease liabilities	52,839
Variable lease cost	27,997
Sublease income	(6,391		)
Net lease cost	$	136,195

The Company’s variable lease cost during 2019 primarily related to operating expenses, taxes and insurance associated with its finance leases. The Company’s sublease income during 2019 primarily related to subleases for an insignificant portion of the Company’s corporate headquarters.

The Company’s leases are included on its consolidated balance sheets as follows:



	As of December 31, 2019		As of December 31, 2018 ^
	(in thousands)
Finance leases
Property and equipment, net	$	445,336	$	640,952
Total finance lease assets	$	445,336	$	640,952

Capital lease obligations, current portion	$	—	$	9,817
Other current liabilities	38,795		5,271
Capital lease obligations, excluding current portion	—		19,658
Construction financing lease obligation, excluding current portion	—		561,892
Long-term finance lease liabilities	538,576		—
Total finance lease liabilities	$	577,371	$	596,638

Operating leases
Other assets	$	88,202	$	—
Total operating lease assets	$	88,202	$	—

Other current liabilities	$	11,504	$	—
Other long-term liabilities	84,292		—
Total operating lease liabilities	$	95,796	$	—
^ As reported in the Company’s 2018 Annual Report on Form 10-K.

Maturities of the Company’s finance and operating lease liabilities in accordance with ASC 842 as of December 31, 2019 were as follows:



Year	Finance Leases			Operating Leases			Total
	(in thousands)
2020	$	84,264		$	14,598		$	98,862
2021	89,440			12,907			102,347
2022	87,092			12,610			99,702
2023	85,257			12,451			97,708
2024	90,802			11,488			102,290
Thereafter	425,251			51,251			476,502
Total lease payments	862,106			115,305			977,411
Less: amount representing interest	(284,735		)	(19,509		)	(304,244		)
Present value of lease liabilities	$	577,371		$	95,796		$	673,167

The weighted-average remaining lease terms and discount rates related to the Company’s leases were as follows:



	As of December 31, 2019
Weighted-average remaining lease term (in years)
Finance leases	9.74
Operating leases	9.70

Weighted-average discount rate
Finance leases	9.04	%
Operating leases	3.75	%

Supplemental cash flow information related to the Company’s leases was as follows:



	December 31, 2019
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	10,650
Operating cash flows from finance leases	$	50,527
Financing cash flows from finance leases	$	39,185

Right-of-use assets obtained in exchange for lease obligations
Operating leases *	$	34,605
Finance leases	$	—
* Includes $33.7 million acquired in 2019 pursuant to the Company’s acquisitions of Semma and Exonics.

Additional Lease Information Related to the Application of ASC 840

The following information is disclosed in accordance with ASC 840, Leases (Topic 840) (“ASC 840”), which was applicable until December 31, 2018. As of December 31, 2018, future minimum commitments under the Company’s real estate leases with initial terms of more than one year were as follows:



Year	Fan Pier Leases		Other Leases		Total Lease Commitments
	(in thousands)
2019	$	66,540	$	18,531	$	85,071
2020	72,589		23,397		95,986
2021	72,589		21,656		94,245
2022	72,589		21,172		93,761
2023	72,589		21,482		94,071
Thereafter	389,855		185,336		575,191
Total minimum lease payments	$	746,751	$	291,574	$	1,038,325

As of December 31, 2018, the Company’s total sublease income to be received related to its facility leases was $6.2 million. During 2018 and 2017, rental expenses were $17.3 million and $19.2 million, respectively.

The capital leases, which were related to equipment and leasehold improvements, bore interest at rates ranging from less than 1% to 6% per year. The Company’s capital lease amortization was included in depreciation expense during 2018 and 2017. The following table set forth the Company’s future minimum payments due under capital leases as of December 31, 2018:



Year	(in thousands)
2019	$	10,770
2020	7,282
2021	5,649
2022	3,300
2023	1,974
Thereafter	3,085
Total payments	32,060
Less: amount representing interest	(2,585		)
Present value of payments	$	29,475

Leases