Mister Car Wash Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Leases

Leases

12 Months Ended

Dec. 31, 2021

12. Leases

The Company’s incremental borrowing rate for a lease is the rate of interest it expects to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. To determine the incremental borrowing rates used to discount the lease payments, the Company estimated its synthetic credit rating and utilized market data for similarly situated companies.

Balance sheet information related to leases consisted of the following for the periods presented:


		As of
	Classification	December 31, 2021		December 31, 2020
Assets
Operating	Operating right of use assets, net	$	718,533	$	681,538
Finance	Property and equipment, net		15,204		16,173
Total lease assets		$	733,737	$	697,711

Liabilities
Current
Operating	Current maturities of operating lease liability	$	37,345	$	33,485
Finance	Current maturities of finance lease liability		559		495
Long-term
Operating	Operating lease liability		717,552		685,479
Finance	Financing lease liability		15,359		15,917
Total lease liabilities		$	770,815	$	735,376

Components of total lease cost, net, consisted of the following for the periods presented:


	Year Ended December 31,
	2021		2020
Operating lease expense(1)	$	79,420	$	78,261
Finance lease expense
Amortization of lease assets		970		324
Interest on lease liabilities		1,164		408
Short-term lease expense		50		23
Variable lease expense(2)		12,045		9,818
Total	$	93,649	$	88,834

(1)

Operating lease expense includes an immaterial amount of sublease income and is included in equipment and facilities and general and administrative on the consolidated statement of operating and comprehensive income (loss).

(2)

Variable lease costs consist primarily of property taxes, property insurance, and common area or other maintenance costs for the Company’s building leases.

The following includes supplemental information for the periods presented:


	Year Ended December 31,
	2021			2020
Operating cash flows from operating leases	$	80,831		$	76,012
Operating cash flows from finance leases	$	1,164		$	408
Financing cash flows from finance leases	$	495		$	223

Operating lease liabilities arising from obtaining ROU assets	$	72,944		$	37,996
Finance lease liabilities arising from obtaining ROU assets	$	-		$	15,597

Weighted-average remaining operating lease term		14.44			15.01
Weighted-average remaining finance lease term		17.30			18.17

Weighted-average operating lease discount rate		6.61	%		6.27	%
Weighted-average finance lease discount rate		7.33	%		7.33	%

As of December 31, 2021, lease obligation maturities were as follows:


Fiscal Year Ending:	Operating Leases			Finance Leases
2022	$	85,439		$	1,684
2023		85,029			1,716
2024		84,423			1,741
2025		84,082			1,766
2026		83,125			1,792
Thereafter		770,373			22,090
Total future minimum obligations	$	1,192,471		$	30,789
Less: Present value discount		(437,574	)		(14,871	)
Present value of net future minimum lease obligations	$	754,897		$	15,918
Less: current portion		(37,345	)		(559	)
Long-term obligations	$	717,552		$	15,359

Forward Starting Leases

As of December 31, 2021, the Company entered into eight leases that had not yet commenced related to build-to-suit arrangements for car wash locations. These leases will commence in 2022 or in 2023 with initial lease terms of five to 20 years.

As of December 31, 2020, the Company entered into 10 leases that had not yet commenced related to build-to-suit arrangements for car wash locations. These leases commenced in 2021 or will commence in the remainder of 2022 with initial lease terms of five to 20 years.

Sale-leaseback Transactions

During the year ended December 31, 2021, the Company completed nine sale-leaseback transactions related to car wash locations with aggregate consideration of $96,584, resulting in net gains of $24,881, which is included in (gain) loss on sale of assets in the consolidated statements of operations and comprehensive income (loss). Contemporaneously with the closing of the sales, the Company entered into lease agreements for the properties for initial 15- to 20-year terms. For the sale-leaseback transactions consummated for the year ended December 31, 2021, the cumulative initial annual rents for the properties were approximately $5,702, subject to annual escalations. These leases are accounted for as operating leases.

During the year ended December 31, 2020, the Company completed seven sale-leaseback transactions related to car wash locations with aggregate consideration of $24,069, resulting in a net gain of $8,536, which is included in (gain) loss on sale of assets on the consolidated statement of operations and comprehensive income (loss). Contemporaneously with the closing of the sale, the Company entered into leases agreements for each of the properties for initial 20-year terms. The cumulative initial annual rent for the properties is approximately $1,432, subject to annual escalations. These leases are accounted for as operating leases.