What is the weighted-average discount rate for operating leases for Degree Wellness, as of December 31, 2024?
Degree_Wellness Franchise · 2025 FDDAnswer from 2025 FDD Document
1, 2024 through December 31, 2024.
| Franchises open at beginning of period | - |
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| Franchises opened during the period | - |
| Franchises closed during the period | - |
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Note 6 – Related Party Lease
The Company sub-leases a portion of office space from Degree Wellness, LLC.
Source: Item 23 — Receipts (FDD pages 66–257)
What This Means (2025 FDD)
According to Degree Wellness's 2025 Franchise Disclosure Document, the weighted-average discount rate for operating leases is 7.33% as of December 31, 2024. This discount rate is used to calculate the present value of future lease payments, which is a critical component in determining the lease liabilities reported on Degree Wellness's balance sheet. The company recognizes right-of-use assets and lease liabilities for leases with terms greater than 12 months. These leases are classified as either finance or operating leases, which affects how the lease expense is recognized. Operating leases are expensed on a straight-line basis over the lease term.
For a potential Degree Wellness franchisee, understanding the discount rate is essential because it impacts the financial obligations associated with leasing a location for their studio. The higher the discount rate, the lower the present value of the lease liabilities, and vice versa. This rate reflects the risk associated with the lease and the time value of money. The FDD also mentions that the company uses the incremental borrowing rate to determine the net present value of the lease when the rate implicit in the lease is not readily determinable. This incremental borrowing rate represents the interest rate Degree Wellness would have to pay to borrow an amount equal to the lease payments under similar terms.
Prospective franchisees should carefully review the lease terms and understand how the discount rate affects their financial statements. They should also consider the length of the lease term, as leases with terms greater than 12 months are subject to these accounting treatments. Furthermore, Degree Wellness subleases a portion of office space from Degree Wellness, LLC, with monthly payments escalating annually through June 2034. This related-party lease arrangement may have implications for the franchisee's lease expenses and should be thoroughly evaluated. Understanding these lease-related factors is crucial for making informed financial decisions when investing in a Degree Wellness franchise.