COMMITMENTS

Leases

On May 2, 2017, we entered into a Lease with Ascentris for an aggregate of 110,783 square feet of space in office and research facilities located at the Premises in Alameda, California. We also have the right to make certain tenant improvements to the space leased on the Premises. The Lease has an initial term of 10 years with a target commencement date of February 1, 2018, and, subject to a partial twelve-month rent abatement period, rent payments will begin upon the target commencement date. We have two five-year options to extend the Lease and a one-time option to terminate the Lease without cause on the last day of the 8^th year of the initial term. The Lease further provides that we are obligated to pay to Ascentris certain costs, including taxes and operating expenses. We also have a right of first offer to lease certain additional space, in the aggregate of approximately 170,000 square feet of space, as that additional space becomes available over the remainder of the initial term at 1601, 1701, 1751, and 1801 Harbor Bay Parkway, Alameda, California at a market rate determined according to the Lease.

We are deemed, for accounting purposes only, to be the owner of portions of the Premises, including two building shells, even though we are not the legal owner. See “Note 5. Property and Equipment - Build-to-Suit Lease” for a further description of the accounting for that portion of the Premises.

On May 2, 2017, we also entered into an Agreement for Conditional Option to Amend Lease (the “Optional Amendment Agreement”) with Ascentris. Under the terms of the Optional Amendment Agreement, a current tenant (the “Tenant”) occupying approximately 16,343 square feet of the facility located at 1801 Harbor Bay Parkway was given the option to relocate to another building on the premises or terminate their current lease early, requiring them to relocate within six months from the termination date. Under the terms of the Optional Amendment Agreement, we would reimburse Ascentris for the first $1.5 million of costs incurred to induce the Tenant to relocate. In August 2017, the Tenant communicated to Ascentris that they were terminating their lease early. During 2017, we recorded a $1.4 million expense for our anticipated reimbursement of costs to Ascentris for the Tenant’s relocation of which $1.2 million remains payable as of December 31, 2017. On October 16, 2017, we executed an amendment to the Lease for an additional 19,778 square feet of space located on the Premises, which includes the space vacated by the Tenant, with terms consistent with the original Lease. Including the amendment, we are obligated to make lease payments totaling $28.5 million over the Lease term.

We also lease two buildings in South San Francisco, California with a total area of 116,063 square feet, the lease for which expires in July 2018.

As of December 31, 2017, the aggregate future minimum lease payments under our leases were as follows (in thousands):



	Operating leases		Other financing obligations⁽¹⁾
Year ending December 31,
2018	$	2,864	$	800
2019	664		1,905
2020	684		2,129
2021	694		2,213
2022	704		2,282
Thereafter	3,730		12,164
	$	9,340	$	21,493

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(1)	Other financing obligations includes payments related to our build-to-suit lease.

Rent expense and sublease income were as follows (in thousands):



	Year Ended December 31,
	2017			2016			2015
Gross rental expense	$	6,160		$	9,676		$	13,942
less: Sublease income	(1,225		)	(3,553		)	(5,205		)
Net rental expense	$	4,935		$	6,123		$	8,737

Letters of Credit and Restricted Cash

We obtained a standby letter of credit related to our South San Francisco lease with a credit limit of $0.5 million at both December 31, 2017 and 2016. We obtained two standby letters of credit related to a workers compensation insurance policy with a combined credit limit of $0.6 million at both December 31, 2017 and 2016. We obtained two standby letters of credit related to the Lease with Ascentris for a combined credit limit of $1.0 million at December 31, 2017. All of the letters of credit are fully collateralized by certificates of deposit. As of December 31, 2017, none of our letters of credit have been drawn upon.

As part of a purchasing card program we initiated during 2007, we were required to provide collateral in the form of certificates of deposit. The collateral requirement at both December 31, 2017 and 2016 was $3.0 million.

The certificate of deposit used to collateralize the standby letter of credit related to our South San Francisco lease was included in short-term restricted cash and investments. The certificates of deposit used to collateralize all other letters of credit and the purchase card program were included in long-term restricted cash and investments.