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

Quarterly report pursuant to Section 13 or 15(d)

Leases

Leases

3 Months Ended

Mar. 31, 2023

Leases [Abstract]

Leases

11. Leases

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


		As of
	Classification	March 31, 2023		December 31, 2022
Assets
Operating	Operating right of use assets, net	$	776,496	$	776,689
Finance	Property and equipment, net		14,069		14,320
Total lease assets		$	790,565	$	791,009

Liabilities
Current
Operating	Current maturities of operating lease liability	$	41,279	$	40,367
Finance	Current maturities of finance lease liability		687		668
Long-term
Operating	Operating lease liability		758,752		759,775
Finance	Financing lease liability		14,599		14,779
Total lease liabilities		$	815,317	$	815,589

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


	Three Months Ended March 31,
	2023		2022

Operating lease expense(1)	$	24,011	$	21,204
Finance lease expense
Amortization of lease assets		251		242
Interest on lease liabilities		276		285
Short-term lease expense		14		8
Variable lease expense(2)		6,703		5,141
Total	$	31,255	$	26,880

(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 our 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 March 31,
	2023			2022
Operating cash flows from operating leases	$	23,766		$	21,461
Operating cash flows from finance leases	$	276		$	285
Financing cash flows from finance leases	$	161		$	134

Operating lease ROU assets obtained in exchange for lease liabilities	$	10,527		$	7,818
Finance lease ROU assets obtained in exchange for lease liabilities	$	-		$	-

Weighted-average remaining operating lease term		13.95			14.27
Weighted-average remaining finance lease term		16.17			17.08

Weighted-average operating lease discount rate		7.43	%		6.66	%
Weighted-average finance lease discount rate		7.33	%		7.33	%

As of March 31, 2023, lease obligation maturities were as follows:


Fiscal Year Ending:	Operating Leases			Finance Leases
2022 (remaining nine months)	$	72,396		$	1,318
2023		96,632			1,780
2024		96,438			1,786
2025		95,295			1,792
2026		91,681			1,819
Thereafter		861,091			20,271
Total future minimum obligations	$	1,313,533		$	28,766
Less: Present value discount		(513,502	)		(13,480	)
Present value of net future minimum lease obligations	$	800,031		$	15,286
Less: current portion		(41,279	)		(687	)
Long-term obligations	$	758,752		$	14,599

Forward-Starting Leases

As of March 31, 2023, we entered into nine 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, 2022, we entered into seven leases that had not yet commenced related to build-to-suit arrangements for car wash locations. These leases will commence in the remainder of 2023, or 2024 or 2025 with initial lease terms of 15 to 20 years.

Sale-Leaseback Transactions

During the three months ended March 31, 2023, we completed two sale-leaseback transactions related to car wash locations with aggregate consideration of $9,213, resulting in a net gain of $370, which are included in (Gain) loss on sale of assets in the accompanying unaudited condensed consolidated statements of operations and comprehensive income. Contemporaneously with the closing of the sales, we entered into lease agreements for the properties for initial 20-year terms. For the sale-leaseback transactions

consummated in the three months ended March 31, 2023, the cumulative initial annual rent for the properties was approximately $559, subject to annual escalations. These leases are accounted for as operating leases.

During the three months ended March 31, 2022, we did not complete any sale-leaseback transactions.