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

Quarterly report pursuant to Section 13 or 15(d)

Leases

Leases

6 Months Ended

Jun. 30, 2023

Leases [Abstract]

Leases

11. Leases

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


		As of
	Classification	June 30, 2023		December 31, 2022
Assets
Operating	Operating right of use assets, net	$	813,924	$	776,689
Finance	Property and equipment, net		13,818		14,320
Total lease assets		$	827,742	$	791,009

Liabilities
Current
Operating	Current maturities of operating lease liability	$	42,029	$	40,367
Finance	Current maturities of finance lease liability		706		668
Long-term
Operating	Operating lease liability		796,203		759,775
Finance	Financing lease liability		14,417		14,779
Total lease liabilities		$	853,355	$	815,589

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

Operating lease expense(1)	$	25,308	$	21,653	$	49,319	$	42,857
Finance lease expense
Amortization of lease assets		251		246		502		488
Interest on lease liabilities		273		283		549		568
Short-term lease expense		12		8		26		16
Variable lease expense(2)		2,113		2,488		8,816		7,629
Total	$	27,957	$	24,678	$	59,212	$	51,558

(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 June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Operating cash flows from operating leases	$	24,934		$	21,881		$	48,700		$	43,342
Operating cash flows from finance leases	$	273		$	283		$	549		$	568
Financing cash flows from finance leases	$	163		$	139		$	324		$	274

Operating lease ROU assets obtained in exchange for lease liabilities	$	48,528		$	20,193		$	59,055		$	28,011
Finance lease ROU assets obtained in exchange for lease liabilities	$	-		$	103		$	-		$	103

Weighted-average remaining operating lease term		14.06			14.18			14.06			14.18
Weighted-average remaining finance lease term		15.97			16.78			15.97			16.78

Weighted-average operating lease discount rate		7.83	%		6.83	%		7.83	%		6.83	%
Weighted-average finance lease discount rate		7.33	%		7.33	%		7.33	%		7.33	%

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


Fiscal Year Ending:	Operating Leases			Finance Leases
2023 (remaining six months)	$	51,077		$	881
2024		102,489			1,780
2025		102,552			1,786
2026		101,539			1,792
2027		97,962			1,819
2028		92,100			1,846
Thereafter		870,502			18,425
Total future minimum obligations	$	1,418,221		$	28,329
Less: Present value discount		(579,989	)		(13,206	)
Present value of net future minimum lease obligations	$	838,232		$	15,123
Less: current portion		(42,029	)		(706	)
Long-term obligations	$	796,203		$	14,417

Forward-Starting Leases

As of June 30, 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 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 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 June 30, 2023, we completed 10 sale-leaseback transactions related to car wash locations with aggregate consideration of $80,042, resulting in a net gain of $4,896, which are included in gain 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 20-year terms. For the sale-leaseback transactions consummated in the three months ended June 30, 2023, the cumulative initial annual rent for the properties was approximately $5,028, subject to annual escalations. These leases are accounted for as operating leases.

During the six months ended June 30, 2023, we completed 12 sale-leaseback transactions related to car wash locations with aggregate consideration of $89,255, resulting in a net gain of $5,226, which are included in gain 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 20-year terms. For the sale-leaseback transactions consummated in the six months ended June 30, 2023, the cumulative initial annual rent for the properties was approximately $5,587, subject to annual escalations. These leases are accounted for as operating leases.

During the three and six months ended June 30, 2022, we completed one sale-leaseback transaction related to car wash locations for $3,800, resulting in a net gain of $3,203, which was included in gain on sale of assets, net in the accompanying unaudited condensed consolidated statements of operations and comprehensive income.