What rate does Auntie Annes use to discount lease payments when the company is a lessee?
Auntie_Annes Franchise · 2024 FDDAnswer from 2024 FDD Document
| December 31, | December 25, | |
|---|---|---|
| 2023 | 2022 | |
| Weighted-average remaining lease term (years) | 9.7 | 8.9 |
| Weighted-average discount rate | 4.4% | 3.7% |
| Operating lease assets, gross | $ 92,642 | $ 92,013 |
| Accumulated amortization | (23,107) | (16,227) |
| Operating lease assets, net | $ 69,535 | $ 75,786 |
Where the Company is a lessee, a lease liability and corresponding right-of-use asset are recognized on the lease commencement date based on the present value of the remaining lease payments over the lease term. Payments are discounted using the Company's incremental borrowing rate, as the rate implicit in the Company's leases is not readily determinable. Lease cost for operating leases is recognized on a straight-line basis. Most of the Company's leases are fixed rent agreements and require the Company to pay related executory costs which include property taxes, maintenance, and insurance. Certain leases for SBRs require the payment of additional contingent rent if SBR sales exceed amounts set forth in the lease agreements. Both the contingent rent and the executory costs are considered variable lease costs and are excluded from the measurement of the lease liability.
Source: Item 23 — RECEIPTS (FDD pages 106–366)
What This Means (2024 FDD)
According to Auntie Annes's 2024 Franchise Disclosure Document, when the company is a lessee, it calculates the present value of remaining lease payments using its incremental borrowing rate. This is because the rate implicit in the company's leases is not readily determinable.
The FDD also provides the weighted-average discount rate used by Auntie Annes. As of December 31, 2023, the weighted-average discount rate was 4.4%, and as of December 25, 2022, it was 3.7%.
This information is relevant to potential franchisees as it provides insight into how Auntie Annes accounts for its lease obligations. While this doesn't directly impact a franchisee's operations, understanding the financial practices of the parent company can be beneficial. Franchisees typically have their own lease arrangements for their store locations, separate from the corporate leases discussed here.