Mister Car Wash Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Leases

Leases

6 Months Ended

Jun. 30, 2022

Leases [Abstract]

Leases

11. Leases

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


		As of
	Classification	June 30, 2022		December 31, 2021
Assets
Operating	Operating lease right of use assets, net	$	727,107	$	718,533
Finance	Property and equipment, net		14,822		15,204
Total lease assets		$	741,929	$	733,737

Liabilities
Current
Operating	Current maturities of operating lease liability	$	38,548	$	37,345
Finance	Current maturities of finance lease liability		628		559
Long-term
Operating	Operating lease liability		722,941		717,552
Finance	Financing lease liability		15,123		15,359
Total lease liabilities		$	777,240	$	770,815

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

Operating lease expense(1)	$	21,653	$	19,395	$	42,857	$	38,520
Finance lease expense
Amortization of lease assets		246		243	$	488		485
Interest on lease liabilities		283		292	$	568		586
Short-term lease expense		8		15	$	16		19
Variable lease expense(2)		2,488		2,564	$	7,629		6,488
Total	$	24,678	$	22,509	$	51,558	$	46,098

(1)

Operating lease expense includes an immaterial amount of sublease income and is included in other store operating expenses and general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations and comprehensive income.

(2)

Variable lease costs consist of property taxes, property insurance, and common area or other maintenance costs for the Company’s leases of land and buildings and is included in other store operating expenses in the accompanying unaudited condensed consolidated statements of operations and comprehensive income.

The following includes supplemental information for the periods presented:


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Operating cash flows from operating leases	$	21,881		$	19,814		$	43,342		$	39,341
Operating cash flows from finance leases	$	283		$	292		$	568		$	586
Financing cash flows from finance leases	$	139		$	121		$	274		$	240

Operating lease liabilities arising from obtaining ROU assets	$	20,193		$	22,421		$	28,011		$	32,020
Finance lease liabilities arising from obtaining ROU assets	$	103		$	-		$	103		$	-

Weighted-average remaining operating lease term		14.18			14.74			14.18			14.74
Weighted-average remaining finance lease term		16.78			17.73			16.78			17.73

Weighted-average operating lease discount rate		6.83	%		6.40	%		6.83	%		6.40	%
Weighted-average finance lease discount rate		7.33	%		7.33	%		7.33	%		7.33	%

As of June 30, 2022, lease obligation maturities were as follows:


Fiscal Year Ending:	Operating Leases			Finance Leases
2022 (remaining six months)	$	44,088		$	865
2023		88,110			1,754
2024		87,605			1,780
2025		87,341			1,786
2026		86,307			1,792
Thereafter		817,819			22,090
Total future minimum obligations	$	1,211,270		$	30,067
Less: Present value discount		(449,781	)		(14,316	)
Present value of net future minimum lease obligations	$	761,489		$	15,751
Less: current portion		(38,548	)		(628	)
Long-term obligations	$	722,941		$	15,123

Forward-Starting Leases

As of June 30, 2022, 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 the remainder of 2022, or in 2023 or 2024 with initial lease terms of 15 to 20 years.

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 the remainder of 2022 or in 2023 with initial lease terms of five to 20 years.

Sale-Leaseback Transactions

During the three and six months ended June 30, 2022, the Company completed one sale-leaseback transaction related to its car wash locations for $3,800, resulting in a net gain of $3,203, which was included in gain on sale of assets in the accompanying unaudited condensed consolidated statements of operations and comprehensive income.

During the three months ended June 30, 2021, the Company completed three sale-leaseback transaction related to its car wash locations with aggregate consideration of $46,200, resulting in a net gain of $7,117, which was included in loss on sale of assets in the accompanying unaudited condensed consolidated statements of operations and comprehensive income. Contemporaneously with the closing of this sale, the Company entered into a lease agreement for the land and buildings for an initial 20-year term. For the sale-leaseback transaction consummated in the three months ended June 30, 2021, the cumulative initial annual rent was approximately $2,655, subject to annual escalations. These leases are accounted for as operating leases.

During the six months ended June 30, 2021, the Company completed four sale-leaseback transactions related to its car wash locations, with aggregate consideration of $46,267, resulting in a net gain of $6,846, which are included in gain on sale of assets in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss. Contemporaneously with the closing of the sales, the Company entered into lease agreements for the properties for initial 20-year terms. For the sale-leaseback transactions consummated in the six months ended June 30, 2021, the cumulative initial annual rent was approximately $2,882, subject to annual escalations. These leases are accounted for as operating leases.