Annual report pursuant to Section 13 and 15(d)

LEASE AGREEMENTS

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LEASE AGREEMENTS
12 Months Ended
Dec. 31, 2017
LEASE AGREEMENTS  
LEASE AGREEMENTS

8. LEASE AGREEMENTS

We currently lease our research and office space under a noncancelable lease agreement with our landlord, HCP BTC, LLC (formerly known as Slough BTC, LLC) which was set to expire in 2018. The lease term provides for renewal option for up to two additional periods of five years each. In July 2017, we exercised our option to extend the term of our lease for another five years through January 2023 and modified the amount of monthly base rent during such renewal period. We reevaluated our lease classification and continue to classify our lease as operating lease during the renewal period.

 

In December 2014, we entered into a sublease agreement, which was amended in 2017, with an unrelated third party to occupy approximately 57,000 square feet of our research and office space. In February 2017, we entered into an amendment to the sublease agreement to increase the subleased research and office space for an additional 9,328 square feet under the same term of the sublease. Effective July 2017, the sublease agreement was amended primarily to extend the term of the sublease through January 2023 and modified the monthly base rent to equal the amount we will pay our landlord. Because the future sublease income under the extended sublease agreement is the same as the amount we will pay our landlord, we did not recognize any loss on sublease relative to this amendment. We expect to receive approximately $22.1 million in future sublease income (excluding our subtenant’s share of facilities operating expenses) through January 2023.

 

We record rent expense on a straight-line basis for our lease, net of sublease income. For our sublease arrangement which we classified as an operating lease, our loss on the sublease was comprised of the present value of our future payments to our landlord less the present value of our future rent payments expected from our subtenant over the term of the sublease. Further, in conjunction with our facilities lease, we have previously issued to our landlord warrants to purchase our common stock.  We have previously capitalized the fair value of these warrants at issuance as part of our other long-term assets and they are being amortized up to January 31, 2018. The liability arising from this sublease agreement was determined using a credit-adjusted risk-free rate to discount the estimated future net cash flows. The changes in the liability related to the sublease agreement during the years ended December 31, 2017, 2016 and 2015 were as follows (in thousands):

 

 

 

 

 

Balance at January 1, 2015

    

$

9,269

 

Accretion of deferred liability

 

 

559

 

Amortization of deferred liability

 

 

(3,363)

 

Balance at December 31, 2015

    

 

6,465

 

Accretion of deferred liability

 

 

357

 

Amortization of deferred liability

 

 

(3,362)

 

Balance at December 31, 2016

 

 

3,460

 

Increase in deferred liability

 

 

495

 

Accretion of deferred liability

 

 

157

 

Amortization of deferred liability

 

 

(3,828)

 

Balance at December 31, 2017

 

$

284

 

 

At December 31, 2017, future minimum lease payments and obligations under our noncancelable operating lease, net of expected sublease receipts, were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating

 

Sublease

 

 

 

 

For years ending December 31,

    

Lease

    

Receipts

    

Net

 

2018

 

$

9,593

 

$

(3,942)

 

$

5,651

 

2019

 

 

9,321

 

 

(4,192)

 

 

5,129

 

2020

 

 

9,694

 

 

(4,360)

 

 

5,334

 

2021

 

 

10,082

 

 

(4,534)

 

 

5,548

 

2022 and thereafter

 

 

11,362

 

 

(5,110)

 

 

6,252

 

Total minimum payments required

 

$

50,052

 

$

(22,138)

 

$

27,914

 

 

Rent expense under our operating lease amounted to approximately $6.9 million, $8.3 million and $8.9 million for the years ended December 31, 2017, 2016 and 2015, respectively.  The rent expense during the years ended December 31, 2017, 2016 and 2015 were net of sublease income, subtenant’s share of certain facilities operating expense and amortization of deferred liability in the aggregate total of $8.0 million, $6.5 million and $6.3 million, respectively.