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

Quarterly report pursuant to Section 13 or 15(d)

Leases

Leases

9 Months Ended

Sep. 30, 2023

Leases [Abstract]

Leases

11. Leases

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


		As of
	Classification	September 30, 2023		December 31, 2022
Assets
Operating	Operating right of use assets, net	$	829,790	$	776,689
Finance	Property and equipment, net		13,567		14,320
Total lease assets		$	843,357	$	791,009

Liabilities
Current
Operating	Current maturities of operating lease liability	$	42,898	$	40,367
Finance	Current maturities of finance lease liability		726		668
Long-term
Operating	Operating lease liability		806,448		759,775
Finance	Financing lease liability		14,230		14,779
Total lease liabilities		$	864,302	$	815,589

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Operating lease expense(1)	$	26,361	$	22,796	$	75,680	$	65,653
Finance lease expense
Amortization of lease assets		251		250		753		739
Interest on lease liabilities		271		282		820		850
Short-term lease expense		12		7		38		23
Variable lease expense(2)		2,949		3,103		11,765		10,732
Total	$	29,844	$	26,438	$	89,056	$	77,997

(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 September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Operating cash flows from operating leases	$	25,758		$	22,820		$	74,458		$	66,162
Operating cash flows from finance leases	$	271		$	282		$	820		$	850
Financing cash flows from finance leases	$	168		$	147		$	492		$	421

Operating lease ROU assets obtained in exchange for lease liabilities	$	27,365		$	44,471		$	86,420		$	72,482
Finance lease ROU assets obtained in exchange for lease liabilities	$	-		$	-		$	-		$	103

Weighted-average remaining operating lease term		13.97			14.22			13.97			14.22
Weighted-average remaining finance lease term		15.77			16.57			15.77			16.57

Weighted-average operating lease discount rate		7.98	%		7.18	%		7.98	%		7.18	%
Weighted-average finance lease discount rate		7.33	%		7.33	%		7.33	%		7.33	%

As of September 30, 2023, lease obligation maturities were as follows:


Fiscal Year Ending:	Operating Leases			Finance Leases
2023 (remaining three months)	$	26,073		$	443
2024		105,065			1,780
2025		105,249			1,786
2026		104,287			1,792
2027		100,695			1,819
2028		94,837			1,846
Thereafter		910,458			18,426
Total future minimum obligations	$	1,446,664		$	27,892
Less: Present value discount		(597,318	)		(12,936	)
Present value of net future minimum lease obligations	$	849,346		$	14,956
Less: current portion		(42,898	)		(726	)
Long-term obligations	$	806,448		$	14,230

Forward-Starting Leases

As of September 30, 2023, we entered into 12 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.

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 2023, or 2024 or 2025 with initial lease terms of 15 to 20 years.

Sale-Leaseback Transactions

During the three months ended September 30, 2023 and 2022, we completed two sale-leaseback transactions related to car wash locations with aggregate consideration of $10,455 and $60,894, respectively, resulting in a net loss of $373 and net gain of $860, respectively, which are included in (Gain) loss on sale of assets, net 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 15- to 20-year terms. For the sale-leaseback transactions consummated in the three months ended September 30, 2023, the cumulative initial annual rent for the properties was approximately $640, subject to annual escalations. These leases are accounted for as operating leases. For the sale-leaseback transactions consummated the three months ended September 30, 2022, the cumulative initial annual rent for the properties was approximately $3,605, subject to annual escalations. These leases are accounted for as operating leases.

During the nine months ended September 30, 2023 and 2022, we completed 14 and three sale-leaseback transactions related to car wash locations, respectively, with aggregate consideration of $99,710 and $64,694, respectively, resulting in a net gain of $4,893 and $4,063, respectively, which are included in (Gain) loss on sale of assets, net 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 15- to 20-year terms. For the sale-leaseback transactions consummated in the nine months ended September 30, 2023, the cumulative initial annual rent for the properties was approximately $6,227, subject to annual escalations. These leases are accounted for as operating leases. For the sale-leaseback transactions consummated in the nine months ended September 30, 2022, the cumulative initial annual rent for the properties was approximately $3,787, subject to annual escalations. These leases are accounted for as operating leases.