Quarterly report pursuant to Section 13 or 15(d)

Lease Obligations

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Lease Obligations
3 Months Ended
Mar. 31, 2023
Leases [Abstract]  
Lease Obligations Lease Obligations
The Company has the following lease obligations:
Victoria, British Columbia
In December 2020, Aurinia entered into a lease for office space in Victoria, British Columbia. During September 2022, the fixed lease term ended on the Victoria lease and the Company exercised its right to enter into a short-term month to month lease, of which expenses are incurred in SG&A. On March 31, 2023, the Company terminated the Victoria lease. 
Rockville, Maryland
During March 2020, the Company entered into a lease for its U.S. commercial office in Rockville, Maryland for a total of 30,531 square feet of office space. The lease has a remaining term of approximately eight years and has an option to extend for two five-year periods after the initial term of 11 years has elapsed and has an option to terminate after seven years. As of March 31, 2023, the Company had a right-of-use asset of $4.8 million and lease liability of $7.9 million included in the condensed consolidated balance sheets. As of December 31, 2022, the Company had a right of use asset of $4.9 million and lease liability of $8.0 million included in the condensed consolidated balance sheets. The Company recorded leasehold improvement incentives in the amount of $2.3 million 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 October 2022, the Company entered into a long term lease in Edmonton for a total of 4,375 square feet of office space. The lease is a six year lease and has an option to renew of five years at prevailing market rates. The lease commenced on November 1, 2022 and the Company recorded the lease as an operating lease. The lease is not material to the Company's financial position.
For all leases, the Company incurs variable lease costs. These costs include operation and maintenance costs included in SG&A and are expensed as incurred. The variable lease costs are not material to the Company's financial position.
The operating lease costs for all leases for the three months ended March 31, 2023 and March 31, 2022 are $0.2 million and $0.3 million respectively.
The following table represents the weighted-average remaining lease term and discount rate as of March 31, 2023:
As of March 31, 2023
Weighted Average Remaining Lease Term (years) Weighted Average Discount Rate
Operating leases 8.4 5.25%
The following table provides a summary of lease liabilities payments for the next five years and thereafter:
(in thousands) Operating Lease Payments
Remainder of 2023 $ 718 
2024 1,113 
2025 1,141 
2026 1,169 
2027 1,198 
Thereafter 4,532 
Total future minimum lease payments 9,871 
Less: lease imputed interest (1,940)
Total future minimum lease payments $ 7,931 
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.
Following U.S. regulatory approval of LUPKYNIS in January 2021, the Company has commenced a capital expenditure payment program for the monoplant totaling approximately CHF 21.0 million. The first capital expenditure payment was made in February 2021 of $11.8 million (CHF 10.5 million) and was treated as an upfront lease payment and recorded under other non-current assets on the condensed consolidated balance sheets. The second payment became due when the facility fulfilled the required operational qualifications in April 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 will account for the arrangement as a finance lease under ASC 842. At lease inception, which is considered to be the operational qualification date that occurred in April 2023. The Company expects to record a right of use (ROU) asset of approximately $111.0 million and a corresponding lease liability of $88.0 million, which is the present value of the minimum lease payments beginning April 2023 and expiring in 2030, and not included in the above table. The incremental borrowing rate applied to the lease liability in April 2023 is 7.25% based on the financial position of the Company, geographical region and term of lease.
The Company has entered into an equipment and facility finance lease for a backup manufacturing encapsulation site in Beinheim, France that has not yet commenced and is therefore, not included in the above table. As part of the agreement, the Company expects to make payments of approximately $1.0 million prior to lease commencement and the present value of minimum lease payments will total approximately $0.1 million.