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, 2022

Leases [Abstract]

Leases

11. Leases

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


		As of
	Classification	September 30, 2022		December 31, 2021
Assets
Operating	Operating lease right of use assets, net	$	763,427	$	718,533
Finance	Property and equipment, net		14,571		15,204
Total lease assets		$	777,998	$	733,737

Liabilities
Current
Operating	Current maturities of operating lease liability	$	39,336	$	37,345
Finance	Current maturities of finance lease liability		648		559
Long-term
Operating	Operating lease liability		750,929		717,552
Finance	Financing lease liability		14,955		15,359
Total lease liabilities		$	805,868	$	770,815

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

Operating lease expense(1)	$	22,796	$	20,134	$	65,653	$	58,654
Finance lease expense
Amortization of lease assets		250		242	$	739		727
Interest on lease liabilities		282		290	$	850		876
Short-term lease expense		7		23	$	23		42
Variable lease expense(2)		3,103		2,160	$	10,732		8,648
Total	$	26,438	$	22,849	$	77,997	$	68,947

(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 land and buildings and is included in other store operating expenses in the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss).

The following includes supplemental information for the periods presented:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Operating cash flows from operating leases	$	22,820		$	20,490		$	66,162		$	59,831
Operating cash flows from finance leases	$	282		$	290		$	850		$	876
Financing cash flows from finance leases	$	147		$	124		$	421		$	364

Operating lease liabilities arising from obtaining ROU assets	$	44,471		$	12,251		$	72,482		$	44,271
Finance lease liabilities arising from obtaining ROU assets	$	-		$	-		$	103		$	-

Weighted-average remaining operating lease term		14.22			14.55			14.22			14.55
Weighted-average remaining finance lease term		16.57			17.51			16.57			17.51

Weighted-average operating lease discount rate		7.18	%		6.45	%		7.18	%		6.45	%
Weighted-average finance lease discount rate		7.33	%		7.33	%		7.33	%		7.33	%

As of September 30, 2022, lease obligation maturities were as follows:


Fiscal Year Ending:	Operating Leases			Finance Leases
2022 (remaining three months)	$	23,101		$	435
2023		92,772			1,755
2024		92,427			1,780
2025		92,217			1,786
2026		91,180			1,792
Thereafter		895,891			22,090
Total future minimum obligations	$	1,287,588		$	29,638
Less: Present value discount		(497,323	)		(14,035	)
Present value of net future minimum lease obligations	$	790,265		$	15,603
Less: current portion		(39,336	)		(648	)
Long-term obligations	$	750,929		$	14,955

Forward-Starting Leases

As of September 30, 2022, the Company entered into six leases that had not yet commenced related to build-to-suit arrangements for car wash locations. These leases will commence in the remainder of 2022, or in 2023 or 2024 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 will commence in the remainder of 2022 or in 2023 with initial lease terms of five to 20 years.

Sale-Leaseback Transactions

During the three months ended September 30, 2022 and 2021, the Company completed two and one sale-leaseback transactions related to its car wash locations, with aggregate consideration of $60,894 and $5,000, respectively, resulting in a net gain of $860 and net loss of $6, respectively, which are included in (Gain) loss 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 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. For the sale-leaseback transactions consummated in the three months ended September 30, 2021, the cumulative initial annual rent for the properties was approximately $310, subject to annual escalations. These leases are accounted for as operating leases.

During the nine months ended September 30, 2022 and 2021, the Company completed three and five sale-leaseback transactions related to its car wash locations, respectively, with aggregate consideration of $64,694 and $51,267, resulting in a net gain of $4,063 and $6,840, respectively, which are included in (Gain) loss 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, 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. For the sale-leaseback transactions consummated in the nine months ended September 30, 2021, the cumulative initial annual rent for the properties was approximately $3,192, subject to annual escalations. These leases are accounted for as operating leases.