How does Corcoran calculate the present value of lease liabilities?
Corcoran Franchise · 2025 FDDAnswer from 2025 FDD Document
Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. At lease commencement, the Company records a liability for its lease obligation measured at the present value of future lease payments and a right-of-use asset equal to the lease liability adjusted for prepayments and lease incentives. The Company uses its collateralized incremental borrowing rate to calculate the present value of lease liabilities as most of its leases do not provide an implicit rate that is readily determinable. The Company does not recognize a lease obligation and right-of-use asset on its balance sheet for any leases with an initial term of 12 months or less. Some real estate leases include one or more options to renew or terminate a lease. The exercise of a lease renewal or termination option is assessed at commencement of the lease and only reflected in the lease term if the Company is reasonably certain to exercise the option. The Company has lease agreements that contain both lease and non-lease components, such as common area maintenance fees, and has made a policy election to combine both fixed lease and non-lease components in total gross rent for all of its leases.
Source: Item 23 — RECEIPTS (FDD pages 75–276)
What This Means (2025 FDD)
According to Corcoran's 2025 Franchise Disclosure Document, the company calculates lease liabilities by determining the present value of future lease payments. When a lease begins, Corcoran records a liability for the lease obligation. This is measured by calculating the present value of the future lease payments. A corresponding right-of-use asset is also recorded, equivalent to the lease liability, but adjusted for any prepayments or lease incentives.
To calculate the present value, Corcoran uses its collateralized incremental borrowing rate. This is because most of Corcoran's leases do not provide an implicit rate that is easily determined. However, Corcoran does not record a lease obligation or right-of-use asset for leases with an initial term of 12 months or less.
Some of Corcoran's real estate leases may include options to renew or terminate the lease. At the beginning of the lease, Corcoran assesses whether it is reasonably certain to exercise these options. If it is reasonably certain, the renewal or termination option is reflected in the lease term. Additionally, Corcoran's lease agreements may contain both lease and non-lease components, such as common area maintenance fees. Corcoran has a policy to combine both fixed lease and non-lease components in the total gross rent for all of its leases.