What are the initial minimum lease terms for the restaurant properties that Carls has sold and leased back?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
We currently have entered into agreements with independent third parties under which we sold and leased back a total of 126 restaurant properties. The initial minimum lease terms are 20 years and include renewal options. The leases also include provisions that provide us with the ability to repurchase the properties, which for accounting purposes, prevents sale recognition as the leased properties are real estate, and we have concluded that no two real estate assets are substantially the same.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 79–80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, when Carls enters into agreements with independent third parties to sell and then lease back restaurant properties, the initial minimum lease terms are 20 years. These leases also include renewal options, giving Carls the potential to extend the lease beyond the initial term.
These lease agreements also have provisions that allow Carls to repurchase the properties. However, for accounting purposes, this repurchase option means that the sale cannot be recognized because the leased properties are considered real estate, and no two real estate assets are substantially the same. This accounting treatment affects how Carls records the transactions on its financial statements.
Specifically, the sales proceeds Carls receives from these sale-leaseback transactions are recorded as liabilities (both current and long-term) until Carls's involvement with the properties is terminated. The properties themselves are reported as owned assets and are depreciated over their remaining useful lives. Rent payments made under these leases are recorded as principal and interest, reflecting the financing nature of the arrangement.