How does Checkersrallys account for leases where it is the sublessor, and where can further information be found?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
| 2028 | | 12,219 | | 2,521 | | | | 2029 | | 11,194 | | 2,552 | | | | Thereafter | | 144,221 | | 41,956 | | | | Total undiscounted lease payments | | 210,740 | | 54,226 | | | | Less: interest | | (64,943) | | (19,281) | | | | Present value of lease payments | $ | 145,797 | $ | 34,945 | | |
Company as Lessor
The Company subleases land and buildings associated with the sale of certain Company-operated restaurants with terms of, or renewable to, 10 to 15 years with no option to purchase. The Company determines the sublease term by assuming exercise of renewal options that are reasonably certain to be exercised. The Company continues to be responsible for the rent payments to the original lessors. The subleases are evaluated for classification as operating, direct financing or sales-type leases. The Company has elected the practical expedient to account for lease components and non-lease components as a single lease component for all underlying classes of assets. The subleases generally obligate the sublessee to pay for costs associated with property taxes, insurance and maintenance costs and are considered to be variable. Variable sublease rental income recorded for the fiscal year ended December 30, 2024 (Successor) and the periods from June 17, 2023 through January 1, 2024 (Successor) and from January 3, 2023 through June 16, 2023 (Predecessor), was $0.1 million, $0.1 million, and $0.1 million, respectively.
The Company is the sublessor on operating leases. The revenue from these subleases is recorded in franchise fees and other income in the accompanying consolidated statements of operations. Sublease rental income recorded for fiscal year ended December 30, 2024 (Successor) and the periods from June 17, 2023 through January 1, 2024 (Successor) and from January 3, 2023 through June 16, 2023 (Predecessor) was $2.0 million, $1.9 million, and $1.0 million, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Maturity Analysis of Lease Receivables - Lessor
| Fiscal Year Ending | Operating Leases |
|---|---|
| 2025 | $ 1,717 |
| 2026 | 1,367 |
| 2027 | 964 |
| 2028 | 568 |
| 2029 | 307 |
| Thereafter | 356 |
| Total future minimum lease receipts | $ 5,279 |
NOTE 15 - COMMITMENTS AND CONTINGENCIES
Self-Insurance
The Company is partially self-insured for a portion of its expected losses under its workers' compensation and general liability programs. We also carry excess liability limits above the primary coverages as we have determined necessary. We believe we maintain insurance coverage that is customary for businesses of our size and type.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the company subleases land and buildings associated with the sale of certain company-operated restaurants, typically with terms of 10 to 15 years, and no option to purchase. Checkersrallys determines the sublease term by assuming the exercise of renewal options that are reasonably certain to be exercised and remains responsible for the original rent payments. These subleases are evaluated and classified as operating, direct financing, or sales-type leases. Checkersrallys has elected to account for lease and non-lease components as a single unit. Generally, the sublessee is obligated to cover property taxes, insurance, and maintenance costs, which are considered variable.
The revenue Checkersrallys receives from these subleases is recorded as "franchise fees and other income" within the consolidated statements of operations. For the fiscal year ended December 30, 2024, sublease rental income was $2.0 million. For the periods from June 17, 2023, through January 1, 2024, it was $1.9 million, and from January 3, 2023, through June 16, 2023, it was $1.0 million. Variable sublease rental income recorded for the fiscal year ended December 30, 2024 (Successor) and the periods from June 17, 2023 through January 1, 2024 (Successor) and from January 3, 2023 through June 16, 2023 (Predecessor), was $0.1 million, $0.1 million, and $0.1 million, respectively.
Checkersrallys uses the guidance in ASC 842, Leases, and ASC 606, Revenue from Contracts with Customers to account for leases. Additional details regarding sublease rental income can be found in Note 14 – Leases. Prior to January 4, 2022, Checkersrallys accounted for these refranchising transactions on an undiscounted basis in accordance with the provisions of ASC 840, which required the recognition of a reserve in the amount of the exposure under the sublease and recognition of the loss in the period the sublease was executed. As part of the adoption of ASC 842, Leases, on January 4, 2022, reserves for restaurant retirement costs and sublease subsidies for lease agreements where the Company is the lessee are captured as an adjustment to the right-of-use assets at the time of transition.