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LEASES | 3 Months Ended
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Mar. 31, 2024
LEASES [Abstract] |
LEASES |
7) | LEASES
The Company currently has operating leases for office and laboratory space in (a) the borough of Manhattan in New York, New York, (b) Cambridge, Massachusetts, and (c) Somerville, Massachusetts, which expire in 2026, 2028, and 2033, respectively. In October 2022, the Company entered into a sublease with a subsidiary of Bristol-Myers Squibb Company, as sublessor (“Sublessor”), for office, laboratory and research and development space of approximately 45,500 square feet in Somerville, Massachusetts. The lease expires in November 2033 and is subject to a five-year extension. Rent payments under the sublease began on November 29, 2023. The Company pays base rent of approximately $0.5 million per month during the first year of the term, which will increase 3% per year thereafter. The Company also makes monthly payments for parking, which are based on market rates that can change from time to time, and pay its share of traditional lease expenses, including certain taxes, operating expenses and utilities. The Company paid the Sublessor a security deposit in the form of a letter of credit in the amount of approximately $4.1 million. Provided there are no events of default by the Company under the sublease, the letter of credit will be reduced on an incremental basis throughout the term. The Sublessor agreed to provide the Company with a tenant improvement allowance (“TIA”) of $190 per rentable square foot, or $8.6 million. Tenant improvements in excess of this amount will be at the Company’s own cost. Construction was substantially complete in January 2024, however, as of March 31, 2024, the Company did not have the certificate of occupancy due to circumstances beyond its control, and therefore, has not yet been able to use the premises for its intended purpose. The total out-of-pocket costs for the improvements was approximately $1.6 million. As of March 31, 2024, the Company received the entire $8.6 million TIA. The Company performed an analysis on the accounting ownership of the tenant improvement assets and determined that such assets were sublessor/lessor owned. As a result, TIA payments made by the Sublessor to the Company for the tenant improvement assets are considered a reimbursement rather than a lease incentive and not included as part of the consideration of the contract. Amounts paid by the Company for sublessor/lessor owned assets in excess of the TIA are considered non-cash lease payments and are added to the consideration in the contract. The Company is in discussions with the Sublessor to possibly renegotiate the terms of the sublease, which may include, among other things, deferment of rent payments as well as a reduction of the lease term, square footage, and/or base rent. As a result, the Company has not made its rent payments on the Somerville sublease due for February, March, April or May 2024. To date, the Company owes the sublessor approximately $2.3 million in past due rent payments, including its share of amounts related to property taxes and common area maintenance costs. See Note 15 for more information related to the past due rent. In February 2024, the Company recognized a reduction of out-of-pocket expenses of approximately $0.4 million for the buildout of sublessor/lessor owned assets as a result of discounts provided to the Company from certain vendors. The change in the timing of the past due rent payments described above and these cost reductions were accounted for as a lease modification of the existing lease. The Company determined that the lease continued to be classified as an operating lease after modification and remeasured the liability for the remaining unpaid lease payments, including an aggregate $0.6 million of unpaid out-of-pocket costs above the TIA that the Company will pay for sublessor/lessor owned assets, as well as remeasuring any variable lease payment that is based on an index or rate. The Company also requested a third-party specialist to reassess the incremental borrowing rate, which is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. This reassessment resulted in a decrease to the incremental borrowing rate from 14.4% to 11.1% as of the modification date. The remeasurement resulted in an increase to the lease liability of approximately $4.2 million with a corresponding adjustment to the ROU asset. For the three months ended March 31, 2024 and 2023, the net operating lease expenses were as follows (in thousands):
|  | Three months ended March 31, |
|  | 2024 |  |  | 2023 |
Operating lease expense |  | $ | 1,637 |  |  | $ | 68 |
Sublease income |  |  | (21 | ) |  |  | (21 | )
Variable lease expense |  |  | 330 |  |  |  | 5 |
Total lease expense |  | $ | 1,946 |  |  | $ | 52 |
The tables below show the beginning balances of the operating ROU assets and lease liabilities as of January 1, 2024 and the ending balances as of March 31, 2024, including the changes during the period (in thousands).
|  | Operating Lease ROU Assets |
Operating lease ROU assets at January 1, 2024 |  | $ | 32,781 |
Adjustment to ROU asset for remeasurement of Somerville Sublease liability |  |  | 4,245 |
Amortization of operating lease ROU assets |  |  | (502 | )
Operating lease ROU assets at March 31, 2024 |  | $ | 36,524 |
|  | Operating Lease Liabilities |
Operating lease liabilities at January 1, 2024 |  | $ | 35,070 |
Adjustment to lease liablity due to remeasurement of Somerville Sublease |  |  | 4,245 |
Accretion of interest for Somerville Sublease |  |  | 709 |
Principal payments on operating lease liabilities |  |  | (585 | )
Operating lease liabilities at March 31, 2024 |  |  | 39,439 |
Less non-current portion |  |  | 36,565 |
Current portion at March 31, 2024 |  | $ | 2,874 |
As of March 31, 2024, the Company’s operating leases had a weighted-average remaining life of 9.5 years with a weighted-average discount rate of 11.07%. The maturities of the operating lease liabilities are as follows (in thousands):
|  | As of March 31, 2024 |
2024 |  | $ | 5,532 |
2025 |  |  | 6,075 |
2026 |  |  | 6,238 |
2027 |  |  | 6,308 |
2028 |  |  | 6,406 |
Thereafter |  |  | 33,880 |
Total payments |  |  | 64,439 |
Less imputed interest |  |  | (25,000 | )
Total operating lease liabilities |  | $ | 39,439 |

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- Definition The entire disclosure for operating leases of lessee. Includes, but is not limited to, description of operating lease and maturity analysis of operating lease liability. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 842 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//842-20/tableOfContent + Details
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