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, 2022

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, 2022		December 31, 2021
Assets
Operating	Operating right of use assets, net	$	776,689	$	718,533
Finance	Property and equipment, net		14,320		15,204
Total lease assets		$	791,009	$	733,737

Liabilities
Current
Operating	Current maturities of operating lease liability	$	40,367	$	37,345
Finance	Current maturities of finance lease liability		668		559
Long-term
Operating	Operating lease liability		759,775		717,552
Finance	Financing lease liability		14,779		15,359
Total lease liabilities		$	815,589	$	770,815

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


	Year Ended December 31,
	2022		2021
Operating lease expense(1)	$	89,250	$	79,420
Finance lease expense
Amortization of lease assets		991		970
Interest on lease liabilities		1,129		1,164
Short-term lease expense		32		50
Variable lease expense(2)		15,156		12,045
Total	$	106,558	$	93,649

(1)

Operating lease expense includes an immaterial amount of sublease income and is included in other store operating expenses 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,
	2022			2021
Operating cash flows from operating leases	$	89,573		$	80,831
Operating cash flows from finance leases	$	1,130		$	1,164
Financing cash flows from finance leases	$	577		$	495

Operating lease ROU assets obtained in exchange for lease liabilities	$	92,048		$	72,944
Finance lease ROU assets obtained in exchange for lease liabilities	$	107		$	-

Weighted-average remaining operating lease term		14.11			14.44
Weighted-average remaining finance lease term		16.37			17.30

Weighted-average operating lease discount rate		7.34	%		6.61	%
Weighted-average finance lease discount rate		7.33	%		7.33	%

As of December 31, 2022, lease obligation maturities were as follows:


Fiscal Year Ending:	Operating Leases			Finance Leases
2023	$	95,239		$	1,755
2024		95,164			1,780
2025		94,977			1,786
2026		93,910			1,792
2027		90,523			1,819
Thereafter		843,312			20,271
Total future minimum obligations	$	1,313,125		$	29,203
Less: Present value discount		(512,983	)		(13,756	)
Present value of net future minimum lease obligations	$	800,142		$	15,447
Less: current portion		(40,367	)		(668	)
Long-term obligations	$	759,775		$	14,779

Forward Starting Leases

As of December 31, 2022, the Company entered into seven leases that had not yet commenced related to build-to-suit arrangements for car wash locations. These leases will commence in years 2023 through 2025 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 commenced in 2022 or will commence in the remainder of 2023 with initial lease terms of five to 20 years.

Sale-leaseback Transactions

During the year ended December 31, 2022, the Company completed six sale-leaseback transactions related to car wash locations with aggregate consideration of $89,932, resulting in net gains of $8,359, which is included in gain on sale of assets, net 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, 2022, the cumulative initial annual rents for the properties were approximately $5,062, subject to annual escalations. These leases are accounted for as operating leases.

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 on sale of assets, net 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.