For Atwell Suites, where is the net investment in the lease presented on the consolidated balance sheets?
Atwell_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
When a sub-lease is classified as a sales-type lease, the Company's interest in the lease is derecognized and replaced by a net investment in the lease receivable. Any difference between those amounts is recognized in the consolidated statements of net income. The net investment in the lease is presented within 'net investment in subleases' on the consolidated balance sheets and is initially recognized at the present value of lease payments receivable under the sublease, which is increased to reflect the accretion of interest and reduced for lease payments received.
| Balances relating to these leases are as follows (in thousands): | |||||
|---|---|---|---|---|---|
| 2024 | 2023 | 2022 | |||
| Undiscounted cash flows for sales-type sub-leases | $ 8,096 $ 6,405 | $ - | |||
| Interest income over the remaining lease term | (604) | (583) | - | ||
| Net investment in lease | $ 7,492 | $ 5,822 | $ - |
Source: Item 23 — Receipts (FDD pages 99–486)
What This Means (2025 FDD)
According to Atwell Suites' 2025 Franchise Disclosure Document, when a sub-lease is classified as a sales-type lease, the net investment in the lease is presented within 'net investment in subleases' on the consolidated balance sheets. This net investment is initially recognized at the present value of lease payments receivable under the sublease. This value increases to reflect the accretion of interest and decreases as lease payments are received.
For example, the balances relating to these leases are detailed in thousands of dollars. In 2024, the undiscounted cash flows for sales-type sub-leases were $8,096, and in 2023, they were $6,405. The interest income over the remaining lease term was ($604) in 2024 and ($583) in 2023. The net investment in the lease was $7,492 in 2024 and $5,822 in 2023.
This accounting treatment is important for prospective Atwell Suites franchisees to understand, as it affects how sublease income and assets are reported on the company's financial statements. It also provides transparency into the financial impact of sublease arrangements, including the initial recognition of lease payments, interest income, and the overall net investment in the lease. Franchisees should consult with financial advisors to fully understand the implications of these accounting practices.