How does Hardees account for sublease payments received from franchisees for restaurants on leased sites?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
-----| | Assets to be held and used (Level 3) (2) | $ | $ 1,667 |
- (1) Represents the impairment of long-lived assets including property & equipment, net and operating lease assets for multiple domestic company-operated closed restaurants.
- (2) Represents impairment recorded for five domestic company-operated restaurants.
The following table presents long-lived assets measured at fair value on a non-recurring basis during fiscal 2024:
| Assets to be disposed of (Level 2) (1) | $ | 3,311 |
|---|
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to Hardees' 2025 Franchise Disclosure Document, when Hardees has sold restaurants to franchisees but remains principally liable for the lease obligations, and has entered into sublease agreements with these franchisees, the sublease payments received are accounted for as rent revenue within franchised restaurants and other revenue. The corresponding lease payments Hardees makes are recorded as rent expense in franchised restaurants and other expense. Both are reflected in Hardees' Combined Consolidated Statements of Income.
This accounting practice means that Hardees recognizes the income from subleasing properties to franchisees as revenue, while simultaneously recognizing their own lease obligations as an expense. This provides a clear picture of the financial impact of these sublease arrangements on Hardees' overall financial statements.
As of January 31, 2025, the nominal value of the lease obligations under the remaining master leases' primary terms is $400,271. This figure represents the total remaining financial commitment Hardees has for leases on properties subleased to franchisees. A prospective franchisee should inquire about the specific terms and conditions of these subleases, including the duration, rent amounts, and any potential liabilities or obligations they may inherit as a sublessee.