Are concession fees other than minimum annual guaranteed amounts included in the measurement of operating lease assets and liabilities for Budget?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
95 | 8 | 1,932 | 1,852 | | 61 | 5 | 628 | 576 | | $ 11,54 | 3 $ | 11,821 | $ 11,829 |
| 2024 | 2023 | 2022 | |
|---|---|---|---|
| $ 6,609 | $ | 6,660 | $ 6,420 |
| 4,220 | 4,425 | 4,650 | |
| 714 | 736 | 759 | |
| $ 11,543 | $ | 11,821 | $ 11,829 |
Lessee
We have operating and finance leases for rental locations, corporate offices, vehicle rental fleet and equipment. Many of our operating leases for rental locations contain concession agreements with various airport authorities that allow us to conduct our vehicle rental operations on site. In general, concession fees for airport locations are based on a percentage of total commissionable revenue as defined by each airport authority, some of which are subject to minimum annual guaranteed amounts. Concession fees other than minimum annual guaranteed amounts are not included in the measurement of operating lease ("ROU") assets and operating lease liabilities and are recorded as variable lease expense as incurred. Our operating leases for rental locations often also require us to pay or reimburse operating expenses.
We lease a portion of our vehicles under operating leases. As of December 31, 2024 and 2023, we have guaranteed up to $30 million and $52 million, respectively, of residual values for these vehicles at the end of their respective lease terms.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, concession fees, excluding minimum annual guaranteed amounts, are not included when measuring operating lease assets and liabilities. Instead, these fees are treated as variable lease expenses and are recorded as they are incurred. This accounting practice applies to Budget's rental locations, many of which operate under concession agreements with airport authorities.
For a prospective Budget franchisee, this means that the financial statements will reflect only the minimum guaranteed concession fees in the operating lease assets and liabilities. Any additional concession fees that are based on a percentage of total commissionable revenue will be accounted for separately as variable expenses. This distinction is important for understanding the true cost of leasing a location, especially in airport settings where concession agreements are common.
This approach to accounting for concession fees can impact a franchisee's financial planning and budgeting. By excluding variable concession fees from the lease liability calculation, Budget provides a clearer picture of the fixed lease obligations. However, franchisees must still carefully monitor their commissionable revenue to budget accurately for the variable concession fees, which can fluctuate based on business performance.
In 2022, Budget had $(9) million of minimum annual guaranteed rent in excess of concession fees as defined in their rental concession agreements. This is included primarily in operating expenses.