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15. Operating Lease Obligations
Texas Ground Lease
As discussed above, as part of the Transaction, iBio CDMO became the tenant under the Ground Lease Agreement for the Property until 2060 upon exercise of available extensions. The base rent payable under the Ground Lease Agreement, which was $151,450 for the prior year, is 6.5% of the Fair Market Value (as defined in the Ground Lease Agreement) of the Property. The Ground Lease Agreement includes various covenants, indemnities, defaults, termination rights, and other provisions customary for lease transactions of this nature.
San Diego
On September 10, 2021, the Company entered into a lease for approximately 11,383 square feet of space in San Diego, California. Terms of the lease include the following:
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The length of term of the lease is 88 months from the lease commencement date (as defined).
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The lease commencement date was estimated to be on or around January 1, 2022. |
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The monthly rent for the first year of the lease is $51,223 and increases approximately 3% per year.
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The lease provides for a base rent abatement for months two through five in the first year of the lease.
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The landlord is providing a tenant improvement allowance of $81,860 to be used for improvements as specified in the lease.
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The Company is responsible for other expenses such as electric, janitorial, etc. |
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The Company opened an irrevocable letter of credit in the amount of $188,844 in favor of the landlord. The letter of credit expires on October 8, 2023 and renews annually as required.
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As discussed above, the lease provides for scheduled increases in base rent and scheduled rent abatements. Rent expense is charged to operations using the straight-line method over the term of the lease which results in rent expense being charged to operations at inception of the lease in excess of required lease payments. This excess (formerly classified as deferred rent) is shown as a reduction of the operating lease ROU asset in the accompanying balance sheet. As the Company has already started making improvements to the facility, the rent expense will be recognized.
The following tables present the components of lease expense and supplemental balance sheet information related to the operating lease obligation (in thousands).
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Three Months Ended |
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Three Months Ended |
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March 31, |
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March 31, |
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2023 |
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2022 |
Operating lease cost: |
$ |
141 |
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$ |
141 |
Total lease cost |
$ |
141 |
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$ |
141 |
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Other information: |
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Cash paid for amounts included in the measurement lease liability: |
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Operating cash flows from operating lease |
$ |
141 |
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$ |
141 |
Operating cash flows from operating lease obligation |
$ |
103 |
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$ |
— |
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Nine Months Ended |
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Nine Months Ended |
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March 31, |
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March 31, |
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2023 |
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2022 |
Operating lease cost: |
$ |
422 |
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$ |
313 |
Total lease cost |
$ |
422 |
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$ |
313 |
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Other information: |
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Cash paid for amounts included in the measurement lease liability: |
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Operating cash flows from operating lease |
$ |
422 |
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$ |
313 |
Operating cash flows from operating lease obligation |
$ |
154 |
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$ |
— |
Future minimum payments under the operating lease obligation are as follows (in thousands):
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Fiscal period ending on December 31: |
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Principal |
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Imputed Interest |
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Total |
2024 |
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$ |
377 |
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$ |
249 |
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$ |
626 |
2025 |
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|
424 |
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220 |
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644 |
2026 |
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476 |
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188 |
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664 |
2027 |
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532 |
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151 |
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683 |
2028 |
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593 |
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|
111 |
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|
704 |
Thereafter |
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1,200 |
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|
82 |
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1,282 |
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Total minimum lease payments |
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3,602 |
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$ |
1,001 |
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$ |
4,603 |
Less: current portion |
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(377) |
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Long-term portion of minimum lease obligation |
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$ |
3,225 |
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