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, 2021

Leases [Abstract]

Leases

10. Leases

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


		As of
	Classification	September 30, 2021		December 31, 2020
Assets
Operating	Operating right of use assets, net	$	699,274	$	681,538
Finance	Property and equipment, net		15,446		16,173
Total lease assets		$	714,720	$	697,711

Liabilities
Current
Operating	Current maturities of operating lease liability	$	36,218	$	33,485
Finance	Current maturities of finance lease liability		542		495
Long-term
Operating	Operating lease liability		700,548		685,479
Finance	Financing lease liability		15,507		15,917
Total lease liabilities		$	752,815	$	735,376

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

Operating lease expense(1)	$	20,134	$	19,706	$	58,654	$	58,745
Finance lease expense
Amortization of lease assets		242		50		727		81
Interest on lease liabilities		290		65		876		111
Short-term lease expense		23		11		42		34
Variable lease expense(2)		2,160		1,498		8,648		6,473
Total	$	22,849	$	21,330	$	68,947	$	65,444

(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 (loss).

(2) Variable lease costs consist of property taxes, property insurance, and common area or other maintenance costs for the Company’s leases of buildings.

The following includes supplemental information for the periods presented:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Operating cash flows from operating leases	$	20,490		$	19,085		$	59,831		$	56,730
Operating cash flows from finance leases	$	290		$	65		$	876		$	111
Financing cash flows from finance leases	$	124		$	45		$	364		$	106

Operating lease liabilities arising from obtaining ROU assets	$	12,251		$	11,342		$	44,271		$	26,867
Finance lease liabilities arising from obtaining ROU assets	$	-		$	15,597		$	-		$	15,597

Weighted-average remaining operating lease term		14.55			14.94			14.55			14.94
Weighted-average remaining finance lease term		17.51			18.39			17.51			18.39

Weighted-average operating lease discount rate		6.45	%		6.26	%		6.45	%		6.26	%
Weighted-average finance lease discount rate		7.33	%		7.33	%		7.33	%		7.33	%

As of September 30, 2021, lease obligation maturities were as follows:


Fiscal Year Ending:	Operating Leases			Finance Leases
2021 (remaining three months)	$	20,557		$	419
2022		82,311			1,683
2023		81,945			1,716
2024		81,325			1,741
2025		80,998			1,766
Thereafter		809,097			23,883
Total future minimum obligations	$	1,156,233		$	31,208
Less: Present value discount		(419,467	)		(15,159	)
Present value of net future minimum lease obligations	$	736,766		$	16,049
Less: current portion		(36,218	)		(542	)
Long-term obligations	$	700,548		$	15,507

Forward-Starting Leases

As of September 30, 2021, the Company entered into 9 leases that had not yet commenced related to build-to-suit arrangements for car wash locations. These leases will commence in the remainder of 2021 or in 2022 with initial lease terms of five to 20 years.

As of December 31, 2020, the Company entered into 10 leases that had not yet commenced related to build-to-suit arrangements for car wash locations. These leases will commence in the remainder of 2021 or in 2022 with initial lease terms of five to 20 years.

Sale-Leaseback Transactions

During the three months ended September 30, 2021 and 2020, the Company completed one and two sale-leaseback transactions related to its car wash locations, respectively, for aggregate consideration of $5,000 and $7,007, respectively, resulting in a net loss of $6 and net gain of $4,408, respectively, which are included in loss (gain) on sale of assets in the accompanying unaudited condensed 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 transaction consummated in the three months ended September 30, 2021, the cumulative initial annual rent for the property was approximately $310, subject to annual escalations. This lease is accounted for as an operating lease. For the sale-leaseback transactions consummated in the three months ended September 30, 2020, the cumulative initial annual rents for the properties were approximately $433, subject to annual escalations. These leases are accounted for as operating leases.

During the nine months ended September 30, 2021 and 2020, the Company completed five and three sale-leaseback transactions related to its car wash locations, respectively, with aggregate consideration of $51,267 and $10,812, respectively, resulting in net gains of $6,840 and $4,210, respectively, which are included in loss (gain) on sale of assets in the accompanying unaudited condensed

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 in the nine months ended September 30, 2021, the cumulative initial annual rents for the properties were approximately $3,192, 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, 2020, the cumulative initial annual rents for the properties were approximately $681, subject to annual escalations. These leases are accounted for as operating leases.