Quarterly report pursuant to Section 13 or 15(d)

Lease Obligations

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Lease Obligations
9 Months Ended
Sep. 30, 2021
Leases [Abstract]  
Lease Obligations Lease Obligations
The Company has the following lease obligations:
Victoria, British Columbia
During the fourth quarter of 2020, the Company entered into facility and furniture leases for its head office located in Victoria, British Columbia for a total space of 13,206 square feet of office space for the facility lease. The lease terms commenced on January 1, 2021 for the facility and furniture leases. As of September 30, 2021, the Company had $0.2 million right-of-use assets (ROU assets) and $0.2 million lease liabilities related to the leases. The Company recognized operating lease costs that are included in SG&A expense in the condensed consolidated statement of operations. The incremental borrowing rate applied to the lease liabilities was 4.08% based on financial position, geographical region and terms of leases.
During August 2020, the Company signed a lease for commercial office space in Victoria, British Columbia. The lease term is expected to begin in 2022. The present value of the minimum lease payments for this lease are $2.7 million. As of September 30, 2021, the lease has not commenced and as a result there has been no accounting recognition associated with the lease.
Rockville, Maryland
During March 2020, the Company entered into a lease for its commercial office in Rockville, Maryland. The lease has a remaining term of approximately 11 years and has an option to extend for two five-year periods after the 11 years has elapsed and has an option to terminate after seven years. As of September 30, 2021, the Company had a right-of-use asset of $5.3 million and lease liability of $8.7 million included in the condensed consolidated balance sheets. As of December 31, 2020, the Company had a right of use asset of $5.5 million and lease liability of $8.4 million included in the condensed consolidated balance sheets. During 2020, the Company received reimbursements for tenant leasehold improvements by the landlord in the amount of $2.3 million for the Maryland lease. The Company recorded these leasehold improvement incentives as additions to the lease liability. The lease term commenced on March 12, 2020. When measuring the lease liability, the Company discounted lease payments using its incremental borrowing rate at March 12, 2020. The incremental borrowing rate applied to the lease liability on March 12, 2020 was 5.2% based on the financial position of the Company, geographical region and term of lease.
Edmonton, Alberta
During the fourth quarter of 2020, the Company entered into an agreement to lease premises in Edmonton, Alberta, commencing on October 1, 2020 and ending September 30, 2021. During the third quarter of 2021, the lease was extended until September 30, 2022. The Company recognizes short-term leases on a straight-line basis and did not record a related lease asset or liability for the Edmonton lease. The Company recognized short-term rent expense for this lease, which is included in SG&A expense in the condensed consolidated statement of operations.
The following table provides supplemental balance sheet information related to the operating lease ROU assets and lease liabilities:
(in thousands) Balance Sheet Classification September 30, 2021 December 31, 2020
Assets
Operating lease right of-use assets Right-of-use assets $ 5,532  $ 5,489 
Liabilities
Current operating lease liabilities Current operating lease liabilities 1,111  788 
Non-current operating lease liabilities Non-current operating lease liabilities 7,795  7,619 
Total lease liabilities $ 8,906  $ 8,407 
Beginning January 1, 2021, the Company began to incur variable lease costs under the existing Victoria and Rockville leases. These costs include operation and maintenance costs for the three and nine month periods ended September 30, 2021. The following provides a summary of the components of leasing costs and rent for the three and nine month periods ended September 30, 2021 and September 30, 2020.
Three months ended
September 30,
Nine Months Ended
September 30,
(in thousands) Consolidated Statement of Operations 2021 2020 2021 2020
Operating lease costs
Operating lease costs Selling, general and administrative $ 261  $ 196  $ 783  $ 456 
Short-term lease costs
Office Building Selling, general and administrative 7  74  21  215 
Variable lease costs
Office building Selling, general and administrative 44  124 
Total rent expense $ 312  $ 271  $ 928  $ 674 
The following table represents the weighted-average remaining lease term and discount rate as of September 30, 2021:
As of September 30, 2021
Weighted Average Remaining Lease Term (years) Weighted Average Discount Rate
Operating leases 9.68 5.20%
The following table provides a summary of operating lease liabilities maturities for the next five years and thereafter:
(in thousands) Operating Lease Payments
Remainder of 2021 $ 281 
2022 1,143 
2023 1,061 
2024 1,085 
2025 1,109 
Thereafter 6,773 
Total future minimum lease payments 11,452 
Less: lease imputed interest (2,546)
Total future minimum lease payments $ 8,906 
Finance Lease
On December 15, 2020, the Company entered into a collaborative agreement with Lonza to build a dedicated manufacturing facility within Lonza’s existing small molecule facility in Visp, Switzerland. The dedicated facility (also referred to as "monoplant") will be equipped with state-of-the-art manufacturing equipment to provide cost and production efficiency for the manufacture of voclosporin, while expanding existing capacity and providing supply security to meet future commercial demand.
The first capital expenditure payment was made in February 2021 of $11.8 million which was treated as an upfront lease payment and recorded under other non-current assets on the condensed consolidated balance sheets. The second payment is not due until the facility fulfills the required operational qualifications which is estimated to be during 2023. Upon completion of the monoplant, the Company will have the right to maintain sole dedicated use of the monoplant by paying a quarterly fixed facility fee.
The Company expects to account for the arrangement as a finance lease under ASC 842. The present value of the minimum lease payments total approximately $84.0 million, beginning April 2023 and expiring in 2030, and are not included in the above table.