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, 2023

12. Leases

Our incremental borrowing rate for a lease is the rate of interest we expect 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, we estimated our 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, 2023		December 31, 2022
Assets
Operating	Operating right of use assets, net	$	833,547	$	776,689
Finance	Property and equipment, net		13,315		14,320
Total lease assets		$	846,862	$	791,009

Liabilities
Current
Operating	Current maturities of operating lease liability	$	43,979	$	40,367
Finance	Current maturities of finance lease liability		746		668
Long-term
Operating	Operating lease liability		809,409		759,775
Finance	Financing lease liability		14,033		14,779
Total lease liabilities		$	868,167	$	815,589

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


	Year Ended December 31,
	2023		2022
Operating lease expense(a)	$	102,422	$	89,250
Finance lease expense
Amortization of lease assets		1,005		991
Interest on lease liabilities		1,087		1,129
Short-term lease expense		52		32
Variable lease expense(b)		18,141		15,156
Total	$	122,707	$	106,558

(a)

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 consolidated statements of operations and comprehensive income (loss).

(b)

Variable lease costs consist primarily 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 consolidated statements of operations and comprehensive income (loss).

The following includes supplemental information for the periods presented:


	Year Ended December 31,
	2023			2022
Operating cash flows from operating leases	$	100,586		$	89,573
Operating cash flows from finance leases	$	1,087		$	1,130
Financing cash flows from finance leases	$	668		$	577

Operating lease ROU assets obtained in exchange for lease liabilities	$	101,861		$	92,048
Finance lease ROU assets obtained in exchange for lease liabilities	$	-		$	107

Weighted-average remaining operating lease term		13.86			14.11
Weighted-average remaining finance lease term		15.57			16.37

Weighted-average operating lease discount rate		8.06	%		7.34	%
Weighted-average finance lease discount rate		7.33	%		7.33	%

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


Fiscal Year Ending:	Operating Leases			Finance Leases
2024	$	106,912		$	1,780
2025		107,088			1,786
2026		106,084			1,792
2027		102,375			1,819
2028		96,443			1,846
Thereafter		937,808			18,425
Total future minimum obligations	$	1,456,710		$	27,448
Less: Present value discount		(603,322	)		(12,669	)
Present value of net future minimum lease obligations	$	853,388		$	14,779
Less: Current portion		(43,979	)		(746	)
Long-term obligations	$	809,409		$	14,033

Forward Starting Leases

As of December 31, 2023, we entered into 14 leases that had not yet commenced related to build-to-suit arrangements for car wash locations. These leases will commence in years 2024 through 2026 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 commenced in 2023 or will commence in 2024 or 2025 with initial lease terms of 15 to 20 years.

Sale-leaseback Transactions

During the year ended December 31, 2023, we completed 19 sale-leaseback transactions related to car wash locations with aggregate consideration of $123,528 resulting in net gains of $1,074, which is included in (gain) loss on sale of assets, net in the consolidated statements of operations and comprehensive income (loss). 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 for the year ended December 31, 2023, the cumulative initial annual rents for the properties were approximately $7,737, subject to annual escalations. These leases are accounted for as operating leases.

During the year ended December 31, 2022, we 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) loss on sale of assets, net in the consolidated statements of operations and comprehensive income (loss). 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 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.