Leases

3 Months Ended

Mar. 31, 2019

Note 8. Leases

In October 2017, the Company entered into a non-cancellable operating lease agreement for office space adjacent to its previously occupied headquarters. The commencement of the lease began in March 2018 and the lease extends for approximately 84 months from the commencement date with a remaining lease term of six years. Monthly rental payments are due under the lease and there are escalating rent payments during the term of the lease. The Company is also responsible for its proportional share of operating expenses of the building and common areas. In conjunction with the new lease, the Company will receive free rent for four months and received a tenant improvement allowance of $74,000. The lease may be extended for one five-year period at then current market rate with annual escalations; however, the Company deemed the extension option not reasonably certain to be exercised and therefore excluded the option from the lease terms. The Company entered into an irrevocable standby letter of credit with the landlord for security of $96,000 upon executing the lease which is included (along with additional funds required to secure the letter of credit) in the balance of non-current restricted cash.

Operating lease right-of-use asset and liability on the condensed consolidated balance sheets represent the present value of remaining lease payments over the remaining lease terms. The Company does not allocate lease payments to non-lease components; therefore, payments for common-area-maintenance and administrative services are not included in the operating lease right-of-use asset and liability. The Company uses its incremental borrowing rate to calculate the present value of the lease payments, as the implicit rate in the lease is not readily determinable.

As of March 31, 2019, the payments of the operating lease liability were as follows:

(in thousands)	Remaining Lease Payments
2019	$	932
2020		1,272
2021		1,310
2022		1,349
2023		1,390
Thereafter		1,745
Total remaining lease payments		7,998
Less: imputed interest		(1,765	)
Total operating lease liability	$	6,233
Less: current portion of operating lease liability		(750	)
Operating lease liability, net of current portion		5,483
Weighted-average remaining lease term	6 years
Weighted-average discount rate		8.4	%

Operating lease costs consist of the fixed lease payments included in operating lease liability and are recorded on a straight-line basis over the lease terms. Operating lease costs were $0.3 million for the three months ended March 31, 2019.

Arcturus Therapeutics Ltd. 10-Q