Leasing Transactions, As a Lessee | Leasing Transactions As a Lessee We have lease agreements covering many of our properties, as well as various equipment, with the most significant leases being our five leases with Service Properties Trust, or SVC, which are further described below. Certain of our leases include renewal options, and certain leases include escalation clauses and purchase options. Renewal periods are included in calculating our operating lease assets and liabilities when they are reasonably certain. Leases with an initial term of 12 months or less are not recognized in our consolidated balance sheets. As of September 30, 2021, most of our SVC Leases (as defined below), the leases covering our other properties, and most of our equipment leases, were classified as operating leases and certain of our other equipment leases and one ground lease pursuant to one SVC Lease were classified as finance leases. As of September 30, 2021, our non-SVC finance lease assets and liabilities were immaterial to our consolidated financial statements. Finance lease assets were included in other noncurrent assets, with the corresponding current and noncurrent finance lease liabilities included in other current liabilities and other noncurrent liabilities, respectively, on our consolidated balance sheets. Certain of our operating leases provide for variable lease costs, which primarily include percentage rent and our obligation for the estimated cost of removing underground storage tanks under the SVC Leases. Our lease costs are included in various balances in our consolidated statements of operations and comprehensive income (loss), as shown in the following table. For the three and nine months ended September 30, 2021 and 2020, our lease costs consisted of the following: Classification in our Consolidated Three Months Ended 2021 2020 Operating lease costs: SVC Leases Real estate rent expense $ 58,951 $ 59,500 Operating lease costs: other Real estate rent expense 2,447 4,182 Variable lease costs: SVC Leases Real estate rent expense 2,332 1,372 Variable lease costs: other Real estate rent expense 168 172 Total real estate rent expense 63,898 65,226 Operating lease costs: equipment and other Site level operating expense and selling, general and administrative expense 710 881 Financing lease costs: equipment and other Site level operating expense 53 — Short-term lease costs Site level operating expense and selling, general and administrative expense 171 390 Amortization of finance lease assets: Depreciation and amortization expense 553 — Amortization of finance lease assets: other Depreciation and amortization expense 553 79 Interest on finance lease liabilities: Interest expense, net 305 — Interest on finance lease liabilities: other Interest expense, net 134 32 Sublease income Nonfuel revenues (502) (542) Net lease costs $ 65,875 $ 66,066 Classification in our Consolidated Nine Months Ended 2021 2020 Operating lease costs: SVC Leases Real estate rent expense $ 177,040 $ 178,499 Operating lease costs: other Real estate rent expense 7,529 9,859 Variable lease costs: SVC Leases Real estate rent expense 6,303 3,073 Variable lease costs: other Real estate rent expense 506 462 Total real estate rent expense 191,378 191,893 Operating lease costs: equipment and other Site level operating expense and selling, general and administrative expense 2,332 2,797 Financing lease costs: equipment and other Site level operating expense 152 — Short-term lease costs Site level operating expense and selling, general and administrative expense 513 1,340 Amortization of finance lease assets: Depreciation and amortization expense 1,290 — Amortization of finance lease assets: other Depreciation and amortization expense 1,212 79 Interest on finance lease liabilities: Interest expense, net 716 — Interest on finance lease liabilities: other Interest expense, net 323 32 Sublease income Nonfuel revenues (1,505) (1,565) Net lease costs $ 196,411 $ 194,576 Maturities of our operating lease liabilities that had remaining noncancelable lease terms in excess of one year as of September 30, 2021, were as follows: SVC Leases (1) Other Total Years ended December 31: 2021 $ 67,350 $ 1,134 $ 68,484 2022 268,980 4,133 273,113 2023 255,407 2,601 258,008 2024 251,234 1,463 252,697 2025 251,221 1,334 252,555 Thereafter 1,789,682 3,483 1,793,165 Total operating lease payments 2,883,874 14,148 2,898,022 Less: present value discount (2) (1,094,815) (2,077) (1,096,892) Present value of operating lease liabilities $ 1,789,059 $ 12,071 $ 1,801,130 (1) Includes rent for properties we sublease from SVC and pay directly to SVC's landlords. (2) The discount rate used to derive the present value of unpaid lease payments is based on the rates implicit in the SVC Leases and our incremental borrowing rate for all other leases. The weighted average remaining lease term for our operating leases as of September 30, 2021, was approximately 12 years. Our weighted average discount rate for our operating leases as of September 30, 2021, was approximately 9.1%. During the nine months ended September 30, 2021 and 2020, we paid $208,905 and $208,327, respectively, for amounts that had been included in the measurement of our operating lease liabilities. As of September 30, 2021 and December 31, 2020, our operating lease assets and liabilities consisted of the following: September 30, December 31, Operating lease assets: SVC Leases $ 1,669,329 $ 1,724,428 Other 11,573 10,455 Total operating lease assets $ 1,680,902 $ 1,734,883 Current operating lease liabilities: SVC Leases $ 112,030 $ 106,788 Other 4,016 4,467 Total current operating lease liabilities $ 116,046 $ 111,255 Noncurrent operating lease liabilities: SVC Leases $ 1,677,029 $ 1,756,449 Other 8,055 6,717 Total noncurrent operating lease liabilities $ 1,685,084 $ 1,763,166 On March 9, 2021, we and SVC amended one of the SVC Leases to reflect the renewal of a third party ground lease at one of the 179 travel center properties that we lease from SVC. This ground lease, which was previously accounted for as an operating lease, is now accounted for as a finance lease. As a result of this ground lease modification, the applicable ground lease has balances, as of September 30, 2021, of $27,095 in other noncurrent assets, $1,487 in other current liabilities and $26,346 in other noncurrent liabilities on our consolidated balance sheets. Maturities of the financing lease liabilities related to the amended ground lease noted above that had remaining noncancelable lease terms in excess of one year as of September 30, 2021, were as follows: Finance Ground Lease Years ended December 31: 2021 $ 644 2022 2,591 2023 2,656 2024 2,722 2025 2,790 Thereafter 24,986 Total financing lease payments 36,389 Less: present value discount (1) (8,556) Present value of financing lease liabilities $ 27,833 (1) The discount rate used to derive the present value of unpaid lease payments is based on the rate implicit in the SVC Lease. Leasing Agreements with SVC. As of September 30, 2021, we leased from SVC a total of 179 properties under five leases that expire between 2029 and 2035, subject to our right to extend those leases. We refer to these five leases collectively as the SVC Leases. We recognized total real estate rent expense under the SVC Leases of $61,283 and $60,872 for the three months ended September 30, 2021 and 2020, respectively, and $183,343 and $181,572 for the nine months ended September 30, 2021 and 2020, respectively. Included in these rent expense amounts are percentage rent payable of $1,850 and $893 for the three months ended September 30, 2021 and 2020, respectively, and $4,827 and $1,742 for the nine months ended September 30, 2021 and 2020, respectively, which are based on a percentage of the increases in total nonfuel revenues at each leased property over base year levels, deferred rent of $4,404 and $13,211 for the three and nine month periods, respectively, and adjustments to record minimum annual rent on a straight line basis over the terms of the leases and estimated future payments by us for the cost of removing underground storage tanks on a straight line basis. The remaining balance of our deferred rent obligations was $26,422 as of September 30, 2021. Pursuant to the SVC Leases, we may request that SVC purchase qualifying capital improvements we make at the leased travel centers in return for increased annual minimum rent. We did not sell to SVC any improvements we made to properties leased from SVC for the three and nine months ended September 30, 2021 and 2020. As permitted by the SVC Leases, we sublease a portion of certain travel centers to third parties to operate other retail operations. These subleases are classified as operating leases. We recognized sublease rental income of $502 and $542 for the three months ended September 30, 2021 and 2020, respectively, and $1,505 and $1,565 for the nine months ended September 30, 2021 and 2020, respectively. As a Lessor We leased two travel centers to franchisees as of September 30, 2021 and 2020. Rent revenues from these operating leases totaled $595 and $584 for the three months ended September 30, 2021 and 2020, respectively, and $1,763 and $1,728 for the nine months ended September 30, 2021 and 2020, respectively. Future minimum lease payments due to us for the two leased sites under these operating leases as of September 30, 2021, were $595 for the remainder of 2021 and $1,190 for 2022. See above for information regarding certain travel centers that we lease from SVC in which we sublease a portion of the travel centers to third parties to operate other retail operations. We also lease portions of owned properties to third parties to operate other retail operations. |
Leasing Transactions, As a Lessor | Leasing Transactions As a Lessee We have lease agreements covering many of our properties, as well as various equipment, with the most significant leases being our five leases with Service Properties Trust, or SVC, which are further described below. Certain of our leases include renewal options, and certain leases include escalation clauses and purchase options. Renewal periods are included in calculating our operating lease assets and liabilities when they are reasonably certain. Leases with an initial term of 12 months or less are not recognized in our consolidated balance sheets. As of September 30, 2021, most of our SVC Leases (as defined below), the leases covering our other properties, and most of our equipment leases, were classified as operating leases and certain of our other equipment leases and one ground lease pursuant to one SVC Lease were classified as finance leases. As of September 30, 2021, our non-SVC finance lease assets and liabilities were immaterial to our consolidated financial statements. Finance lease assets were included in other noncurrent assets, with the corresponding current and noncurrent finance lease liabilities included in other current liabilities and other noncurrent liabilities, respectively, on our consolidated balance sheets. Certain of our operating leases provide for variable lease costs, which primarily include percentage rent and our obligation for the estimated cost of removing underground storage tanks under the SVC Leases. Our lease costs are included in various balances in our consolidated statements of operations and comprehensive income (loss), as shown in the following table. For the three and nine months ended September 30, 2021 and 2020, our lease costs consisted of the following: Classification in our Consolidated Three Months Ended 2021 2020 Operating lease costs: SVC Leases Real estate rent expense $ 58,951 $ 59,500 Operating lease costs: other Real estate rent expense 2,447 4,182 Variable lease costs: SVC Leases Real estate rent expense 2,332 1,372 Variable lease costs: other Real estate rent expense 168 172 Total real estate rent expense 63,898 65,226 Operating lease costs: equipment and other Site level operating expense and selling, general and administrative expense 710 881 Financing lease costs: equipment and other Site level operating expense 53 — Short-term lease costs Site level operating expense and selling, general and administrative expense 171 390 Amortization of finance lease assets: Depreciation and amortization expense 553 — Amortization of finance lease assets: other Depreciation and amortization expense 553 79 Interest on finance lease liabilities: Interest expense, net 305 — Interest on finance lease liabilities: other Interest expense, net 134 32 Sublease income Nonfuel revenues (502) (542) Net lease costs $ 65,875 $ 66,066 Classification in our Consolidated Nine Months Ended 2021 2020 Operating lease costs: SVC Leases Real estate rent expense $ 177,040 $ 178,499 Operating lease costs: other Real estate rent expense 7,529 9,859 Variable lease costs: SVC Leases Real estate rent expense 6,303 3,073 Variable lease costs: other Real estate rent expense 506 462 Total real estate rent expense 191,378 191,893 Operating lease costs: equipment and other Site level operating expense and selling, general and administrative expense 2,332 2,797 Financing lease costs: equipment and other Site level operating expense 152 — Short-term lease costs Site level operating expense and selling, general and administrative expense 513 1,340 Amortization of finance lease assets: Depreciation and amortization expense 1,290 — Amortization of finance lease assets: other Depreciation and amortization expense 1,212 79 Interest on finance lease liabilities: Interest expense, net 716 — Interest on finance lease liabilities: other Interest expense, net 323 32 Sublease income Nonfuel revenues (1,505) (1,565) Net lease costs $ 196,411 $ 194,576 Maturities of our operating lease liabilities that had remaining noncancelable lease terms in excess of one year as of September 30, 2021, were as follows: SVC Leases (1) Other Total Years ended December 31: 2021 $ 67,350 $ 1,134 $ 68,484 2022 268,980 4,133 273,113 2023 255,407 2,601 258,008 2024 251,234 1,463 252,697 2025 251,221 1,334 252,555 Thereafter 1,789,682 3,483 1,793,165 Total operating lease payments 2,883,874 14,148 2,898,022 Less: present value discount (2) (1,094,815) (2,077) (1,096,892) Present value of operating lease liabilities $ 1,789,059 $ 12,071 $ 1,801,130 (1) Includes rent for properties we sublease from SVC and pay directly to SVC's landlords. (2) The discount rate used to derive the present value of unpaid lease payments is based on the rates implicit in the SVC Leases and our incremental borrowing rate for all other leases. The weighted average remaining lease term for our operating leases as of September 30, 2021, was approximately 12 years. Our weighted average discount rate for our operating leases as of September 30, 2021, was approximately 9.1%. During the nine months ended September 30, 2021 and 2020, we paid $208,905 and $208,327, respectively, for amounts that had been included in the measurement of our operating lease liabilities. As of September 30, 2021 and December 31, 2020, our operating lease assets and liabilities consisted of the following: September 30, December 31, Operating lease assets: SVC Leases $ 1,669,329 $ 1,724,428 Other 11,573 10,455 Total operating lease assets $ 1,680,902 $ 1,734,883 Current operating lease liabilities: SVC Leases $ 112,030 $ 106,788 Other 4,016 4,467 Total current operating lease liabilities $ 116,046 $ 111,255 Noncurrent operating lease liabilities: SVC Leases $ 1,677,029 $ 1,756,449 Other 8,055 6,717 Total noncurrent operating lease liabilities $ 1,685,084 $ 1,763,166 On March 9, 2021, we and SVC amended one of the SVC Leases to reflect the renewal of a third party ground lease at one of the 179 travel center properties that we lease from SVC. This ground lease, which was previously accounted for as an operating lease, is now accounted for as a finance lease. As a result of this ground lease modification, the applicable ground lease has balances, as of September 30, 2021, of $27,095 in other noncurrent assets, $1,487 in other current liabilities and $26,346 in other noncurrent liabilities on our consolidated balance sheets. Maturities of the financing lease liabilities related to the amended ground lease noted above that had remaining noncancelable lease terms in excess of one year as of September 30, 2021, were as follows: Finance Ground Lease Years ended December 31: 2021 $ 644 2022 2,591 2023 2,656 2024 2,722 2025 2,790 Thereafter 24,986 Total financing lease payments 36,389 Less: present value discount (1) (8,556) Present value of financing lease liabilities $ 27,833 (1) The discount rate used to derive the present value of unpaid lease payments is based on the rate implicit in the SVC Lease. Leasing Agreements with SVC. As of September 30, 2021, we leased from SVC a total of 179 properties under five leases that expire between 2029 and 2035, subject to our right to extend those leases. We refer to these five leases collectively as the SVC Leases. We recognized total real estate rent expense under the SVC Leases of $61,283 and $60,872 for the three months ended September 30, 2021 and 2020, respectively, and $183,343 and $181,572 for the nine months ended September 30, 2021 and 2020, respectively. Included in these rent expense amounts are percentage rent payable of $1,850 and $893 for the three months ended September 30, 2021 and 2020, respectively, and $4,827 and $1,742 for the nine months ended September 30, 2021 and 2020, respectively, which are based on a percentage of the increases in total nonfuel revenues at each leased property over base year levels, deferred rent of $4,404 and $13,211 for the three and nine month periods, respectively, and adjustments to record minimum annual rent on a straight line basis over the terms of the leases and estimated future payments by us for the cost of removing underground storage tanks on a straight line basis. The remaining balance of our deferred rent obligations was $26,422 as of September 30, 2021. Pursuant to the SVC Leases, we may request that SVC purchase qualifying capital improvements we make at the leased travel centers in return for increased annual minimum rent. We did not sell to SVC any improvements we made to properties leased from SVC for the three and nine months ended September 30, 2021 and 2020. As permitted by the SVC Leases, we sublease a portion of certain travel centers to third parties to operate other retail operations. These subleases are classified as operating leases. We recognized sublease rental income of $502 and $542 for the three months ended September 30, 2021 and 2020, respectively, and $1,505 and $1,565 for the nine months ended September 30, 2021 and 2020, respectively. As a Lessor We leased two travel centers to franchisees as of September 30, 2021 and 2020. Rent revenues from these operating leases totaled $595 and $584 for the three months ended September 30, 2021 and 2020, respectively, and $1,763 and $1,728 for the nine months ended September 30, 2021 and 2020, respectively. Future minimum lease payments due to us for the two leased sites under these operating leases as of September 30, 2021, were $595 for the remainder of 2021 and $1,190 for 2022. See above for information regarding certain travel centers that we lease from SVC in which we sublease a portion of the travel centers to third parties to operate other retail operations. We also lease portions of owned properties to third parties to operate other retail operations. |