FRACTYL HEALTH, INC. Leases Disclosure
7. Leases
Lexington Lease
In November 2015, the Company entered into a lease agreement for 30,000 square feet of office and laboratory space in Lexington, Massachusetts (the “Lexington Lease”) with an initial lease term covering a seven-year period from May 1, 2016 through April 30, 2023. In June 2022, the Company extended the initial term of the Lexington Lease for twelve months. The Lexington Lease expired on April 30, 2024 at the end of its extended term.
Burlington Lease
In August 2022, the Company entered into a lease agreement for 78,000 square feet of office and laboratory space in Burlington, Massachusetts (the “Burlington Lease”). The lease contains a total lease term of 128 months, which includes an initial eight-month period of free rent and a remaining lease term of 10 years. Total lease payments for the Burlington Lease amount to $59.3 million. Additionally, the Burlington Lease incorporates a five-year renewal option exercisable at the Company’s discretion; however, these extensions were not included in the operating lease assets and lease liabilities recorded on the consolidated balance sheets as they were not reasonably certain of being exercised.
The Burlington Lease commenced on November 1, 2023, upon which the Company recognized the right-of-use asset and lease liability of $30.2 million on its consolidated balance sheet in accordance with ASC 842. The Company estimated the incremental borrowing rate at the time of the Burlington Lease commencement to be 12.67%, which was used as the discount rate in the measurement of the lease liabilities.
The following table is a summary of the components of operating lease expenses for the years ended December 31, 2025 and 2024:
(in thousands) |
|
2025 |
|
|
2024 |
|
||
Operating lease cost |
|
$ |
5,548 |
|
|
$ |
5,934 |
|
Short-term lease cost |
|
|
13 |
|
|
|
138 |
|
Variable lease cost |
|
|
682 |
|
|
|
1,393 |
|
Total lease cost |
|
$ |
6,243 |
|
|
$ |
7,465 |
|
The Company’s operating leases require payments for certain operating expenses, taxes, and other expenses based on actual costs incurred. As these amounts are variable in nature, these payments are expensed in the periods incurred and included in variable lease costs for the years ended December 31, 2025 and 2024.
The weighted-average remaining lease term and weighted-average discount rate for the Company’s operating leases as of December 31, 2025 and 2024 were as follows:
|
|
2025 |
|
|
2024 |
|
||
Weighted-average remaining lease term in years |
|
|
8.5 |
|
|
|
9.5 |
|
Weighted-average discount rate |
|
|
12.7 |
% |
|
|
12.7 |
% |
The following table summarizes the maturity of operating lease liabilities as of December 31, 2025:
Year Ending December 31, |
|
|
|
|
2026 |
|
$ |
5,406 |
|
2027 |
|
|
5,568 |
|
2028 |
|
|
5,735 |
|
2029 |
|
|
5,907 |
|
2030 |
|
|
6,084 |
|
Thereafter |
|
|
22,776 |
|
Total future minimum lease payments |
|
|
51,476 |
|
Less: Imputed interest |
|
|
(20,416 |
) |
Total lease liabilities |
|
$ |
31,060 |
|
Future minimum operating lease payments above do not include those committed under short-term leases and leases not yet commenced.
The Company has an obligation to maintain a letter of credit as the security deposit for its Burlington Lease, which is held in favor of the lessor. This letter of credit was initially issued for a period of 12 months with automatic annual renewal until the expiration date specified in the lease agreement. As of December 31, 2025, the Company had a total of $4.3 million outstanding in the letter of credit associated with the Burlington Lease, which was collateralized by cash maintained in a collateral bank account. The balance of the cash maintained in the collateral bank account has been included in restricted cash, long-term, on the Company’s consolidated balance sheet.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 24, 2026 | Showing above |
| 2024 | Mar 3, 2025 | |
About Leases Disclosures
Lease disclosures under ASC 842 provide a comprehensive view of a company's leased asset portfolio, including the split between operating and finance leases, discount rates used to present-value future payments, and the maturity schedule of lease obligations. This section reveals a significant source of off-balance-sheet commitments that were largely hidden before the current standard.
Key signals: the weighted-average discount rate affects the size of recorded lease liabilities — a higher rate reduces the reported obligation, so compare the chosen rate against the company's incremental borrowing rate. The operating versus finance lease mix affects both EBITDA and operating income presentation. Watch the maturity table for concentration risk: large payment cliffs in specific years may create cash flow pressure. Variable lease payments excluded from the liability measurement represent real obligations that do not appear on the balance sheet. Compare total lease costs against prior-year operating lease expense to assess the true economic burden.