How does Noodles & Company account for tenant incentives used to fund leasehold improvements?
Noodles_Company Franchise · 2025 FDDAnswer from 2025 FDD Document
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The Company leases restaurant facilities, office space and certain equipment that expire on various dates through September 2043. Lease terms for restaurants in traditional shopping centers generally include a base term of 10 years, with options to extend these leases for additional periods of five to 15 years.
The Company's leases typically contain rent escalations over the lease term. The Company recognizes expense for these leases on a straight-line basis over the lease term. Additionally, tenant incentives used to fund leasehold improvements are reco
Source: Item 22 — CONTRACTS (FDD pages 98–99)
What This Means (2025 FDD)
According to Noodles & Company's 2025 Franchise Disclosure Document, tenant incentives received to fund leasehold improvements are recognized when earned. These incentives reduce the right-of-use asset related to the lease. The reduced right-of-use asset is then amortized as reductions of expense over the lease term.
In simpler terms, if Noodles & Company receives money from a landlord to improve a restaurant location, that money isn't immediately counted as income. Instead, it lowers the value of the asset representing the right to use the property (the 'right-of-use asset'). This lower asset value then results in smaller expense deductions over the life of the lease.
For a prospective franchisee, this accounting practice means that any tenant incentives Noodles & Company negotiates will effectively spread out as a benefit over the entire lease term, rather than appearing as a one-time boost. This approach provides a more consistent and accurate picture of the restaurant's financial performance over time. It's also worth noting that the total rent expense for operating leases for 2024, 2023 and 2022 was approximately $39.4 million, $39.2 million and $38.5 million, respectively.