How does Hardees recognize lease payments for operating leases as property revenue?

According to Hardees's 2025 Franchise Disclosure Document, the company recognizes lease payments for operating leases as property revenue on a straight-line basis over the lease term. This means that Hardees allocates the total lease payments evenly over the entire period of the lease, recognizing the same amount of revenue in each period. Additionally, Hardees recognizes variable lease payment income for operating leases in the period when changes in facts and circumstances on which the variable lease payments are based occur. The same is true for variable lease payment income for operating and financing leases.

For a prospective Hardees franchisee, this accounting practice is relevant if Hardees leases or subleases property to them. The franchisee will be making lease payments to Hardees, which Hardees will then recognize as revenue. The straight-line basis ensures a consistent revenue stream for Hardees related to these leases.

The recognition of variable lease payments when changes in circumstances occur could relate to situations where lease payments are tied to factors such as the franchisee's sales performance or changes in market conditions. This means that if a franchisee's sales increase, and the lease agreement stipulates a variable payment based on sales, Hardees will recognize the additional income in the period when those sales occur. This policy provides transparency into how Hardees accounts for lease revenues, which can be helpful for franchisees in understanding their financial relationship with the franchisor.