Leases
On September 28, 2023, the Company entered into a lease agreement for premises consisting of approximately 100,904 square feet of office and laboratory space located at Oyster Point Blvd, South San Francisco, California (the "Oyster Point Lease"), which is being used as a single unified the Company headquarters. The lease term of approximately seven years started in the second quarter of 2024 when the Landlord substantially completed tenant improvements, and may be extended for a period of eight years at then prevailing market rates for a comparable property. Future lease payments are approximately $41.9 million which represent payments due for the initial term of the lease. We excluded extension options that are not reasonably certain to be exercised from our lease terms. Our lease payments consist primarily of fixed rental payments for the right to use the underlying leased assets over the lease term. Additionally, the Company
provided a letter of credit to the Landlord in the amount of $1.4 million in connection with the Oyster Point Lease, which is classified as restricted cash as of December 31, 2024.
Though the Oyster Point Lease is accounted for as a single contract, the office space was occupied in March 2024 while the laboratory space was occupied in June 2024. Accordingly, the Company measured and allocated consideration to each lease component. Upon commencement of each lease component the Company recognized an aggregate right-of-use asset ("ROU") and lease liability of $23.7 million and $6.1 million during the quarters ended March 31, 2024 and June 30, 2024, respectively.
Operating lease ROU assets and liabilities on our balance sheets represent the present value of our remaining lease payments over the remaining lease terms. We use our incremental borrowing rate to calculate the present value of our lease payments, as the implicit rates in our leases are not readily determinable. Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company used its incremental borrowing rate based on the information available at the date of the commencement of the new lease.
The undiscounted future non-cancellable lease payments of the Company's operating lease liability as of December 31, 2024 were as follows (in thousands):
| | | | | | | | |
| Year ending December 31: | | Operating Leases |
| 2025 | | $ | 3,287 | |
| 2026 | | 4,406 | |
| 2027 | | 5,898 | |
| 2028 | | 7,468 | |
| 2029 | | 8,129 | |
| Thereafter | | 12,693 | |
| Total undiscounted lease payments | | 41,881 | |
| Less: Present value discount | | (11,900) | |
| Total discounted lease payments | | 29,981 | |
| Total current operating lease liabilities | | 542 | |
| Total non-current operating lease liabilities | | 29,439 | |
| Total lease liability | | $ | 29,981 | |
The weighted-average remaining lease terms and discount rates related to the Company's operating leases were as follows: | | | | | | | | | | | | | | |
| | As of December 31, |
| | 2024 | | 2023 |
| Weighted-average remaining lease term (in years) | | 6.4 | | 0.6 |
| Weighted-average discount rate | | 9.3 | % | | 13.6 | % |
Variable lease costs comprise primarily of the Company's proportionate share of operating expenses, property taxes, and insurance. Short-term lease expense and variable lease payments recorded in operating expenses were immaterial for the years ended December 31, 2024, 2023 and 2022. Lease expenses are as follows (in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | As of December 31, |
| | 2024 | | 2023 | | 2022 |
| Operating lease costs | | $ | 5,756 | | | $ | 2,771 | | | $ | 2,501 | |
| Other variable costs | | 1,428 | | | 766 | | | 721 | |
| Total expense | | $ | 7,184 | | | $ | 3,537 | | | $ | 3,222 | |