Leases

9 Months Ended

Sep. 30, 2021

Redwood City, CA Existing Lease

The Company leases its office and laboratory space pursuant to an operating lease ("Existing Lease"), which commenced on September 1, 2018 and had an original lease term expiring in February 2029. Upon the execution of the Existing Lease, the Company provided the landlord with a letter of credit in the amount of $1.0 million, which was returned after receipt of the replacement letter of credit in conjunction with the execution of the expansion lease below.

On November 1, 2021, the Company entered into an amendment to terminate the lease of one of its premises under the Existing Lease and paid a termination fee of $0.4 million. As of September 30, 2021, the Company has an operating right-of-use asset of $15.9 million and an operating lease obligation of $21.5 million relating to this lease, which represents $30.8 million of undiscounted lease payments less $9.3 million of present value adjustment. Concurrently, the Company entered into an agreement to sublease a portion of such premises at $0.1 million monthly base rent. The sublease will expire on March 31, 2022 and may be extended on a month to month basis until June 30, 2022.

As of September 30, 2021, the Company evaluated its plans for the leased facilities including the decision to terminate and vacate certain leased office space under the Existing Lease. This change in the circumstances resulted in the requirement to test the recoverability of the carrying amount of the asset group. As of September 30, 2021, the carrying amount of the asset group, consisting of right-of-use assets and leasehold improvements, relating to one of the premises under Existing Lease to be terminated exceeds the Company's anticipated undiscounted cash flows. Accordingly, the Company reviewed the related right-of-use assets and leasehold improvements for impairment. As a result of the evaluation, the Company recorded an impairment charge of $1.1 million, which includes $0.8 million associated with the right-of-use assets and $0.3 million associated with leasehold improvements, for the three and nine months ended September 30, 2021. The assets indicated as impaired were written down to the estimated fair value, which was determined using the terms of the termination and sublease agreements.

Redwood City, CA Expansion Lease

On April 22, 2021, the Company entered into the first amendment to the Existing Lease pursuant to which the Company leased an additional building (the “Expansion Premises”) with a term of ten years ("Expansion Lease"). The Expansion Lease commenced on June 9, 2021 and has a lease term expiring in December 2031.

The Expansion Lease provides a total of tenant improvement allowances of up to $10.2 million. On the execution of the Expansion Lease, the Company provided the landlord with a letter of credit in the amount of $2.5 million, which is classified as restricted cash under long term assets on the Company's condensed consolidated balance sheets, and replaced the letter of credit delivered in connection with the Existing Lease.

The first amendment to the Existing Lease also extends the term of the Existing Lease to expire in December 2031, with an option to extend the Existing Lease and the Expansion Lease for a period of eight years.

North Carolina Lease

On January 8, 2021, the Company entered into an operating lease agreement for a building in North Carolina ("NC Premises"). The lease commenced in April 2021 when the Company obtained control of the NC Premises, and the lease term expires in October 2037 with two options to extend the lease term for a period of five years each.

The Company had the right to make tenant improvements with a lease incentive allowance of up to $25.5 million. The Company made the rent payment for the first month upon commencement of the lease. Thereafter, the rent payments begin in November 2022. The North Carolina Lease provides for an escalation of rent payment each year. In connection with the lease, the Company provided the landlord with a letter of credit in the amount of $2.8 million, which is classified as restricted cash under long term assets on the condensed consolidated balance sheet as of September 30, 2021. The $2.8 million was replaced by a security deposit pledged by the subtenant to the Company as part of the sublease agreement entered on October 26, 2021 below.

As of September 30, 2021, the Company evaluated its plans for the leased facilities including the decision to sublease the North Carolina facility. This change in the circumstances resulted in the requirement to test the recoverability of the carrying amount of the asset group. The impairment test was performed at the right-of-use asset and the leasehold improvements level, representing the lowest identifiable levels of cash flows. On October 26, 2021, the Company entered into a sublease agreement with a subtenant for the NC Premises. The sublease commences on October 26, 2021 and expires on October 31, 2037. The base annual rental rates, payment schedules and amounts under the sublease agreement are substantially the same as the original payment terms by Adverum to the landlord. Sublease income is approximately $108.2 million over the term of the lease excluding share of facilities operating expenses. As of September 30, 2021, the undiscounted value of the sublease income over the sublease term exceeds the carrying amount of the asset group relating to the NC Premises. The Company determined that there was no impairment related to the NC Premises.

As of September 30, 2021, the weighted-average remaining lease term was 12.1 years for the Company's leases and the weighted-average Incremental Borrowing Rate (“IBR”) was 6.79%. IBR is an estimated rate of interest used to determine present value of future lease payments in order to measure lease liability, which rate is what the Company would pay to borrow equivalent funds on a collateralized basis at the lease commencement date. In order to determine the IBR, the Company estimates its credit rating, adjusts the credit rating for the nature of the collateral, and benchmarks the borrowing rate against observable yields on comparable securities with a similar term.

As of September 30, 2021, the undiscounted future non-cancellable lease payments under the lease agreements, after giving effect to the amendment to terminate one of its premises under the Existing lease and the sublease of the NC Premises, are as follows (in thousands):


Year ending December 31,	Operating Leases		Sublease Payments Receivable
2021 (remaining 3 months)	$	818	$	463
2022	6,049		491
2023	13,947		5,844
2024	14,405		6,019
2025	14,880		6,200
Thereafter	149,252		89,136
Total undiscounted lease payments	199,351		$	108,153
Less: Present value adjustment	(75,629)
Less: Tenant improvement allowance	(30,015)
Add: Lease incentive receivable	7,358
Total lease liability as of September 30, 2021	$	101,065

Rent expense for the three months ended September 30, 2021 and 2020 was $4.3 million, and $1.3 million, respectively, including variable lease cost of $0.6 million and $0.4 million, respectively. Variable lease costs includes utilities, parking, maintenance, and real estate taxes. Rent expense for the nine months ended September 30, 2021 and 2020 was $8.5 million, and $4.4 million, respectively, including variable lease cost of $1.3 million and $1.1 million, respectively.