Leasing Transactions | 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, 2022, 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. Finance lease assets were included in other noncurrent assets other current liabilities other noncurrent liabilities Leasing Agreements with SVC As of September 30, 2022, we leased from SVC a total of 179 properties under five leases. We refer to these five leases collectively as the SVC Leases. The SVC Leases expire between 2029 and 2035, subject to our right to extend those leases. We have two renewal options of 15 years under each of the SVC Leases. 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, we recorded $28,201 in other noncurrent assets, $1,158 in other current liabilities and $27,046 in other noncurrent liabilities on our consolidated balance sheets in the first quarter of 2021. We recognized total real estate rent expense under the SVC Leases of $64,056 and $61,283 for the three months ended September 30, 2022 and 2021, respectively, and $192,262 and $183,343 for the nine months ended September 30, 2022 and 2021, respectively. Included in these rent expense amounts are percentage rent payable of $2,692 and $1,850 for the three months ended September 30, 2022 and 2021, respectively, and $8,029 and $4,827 for the nine months ended September 30, 2022 and 2021, 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. As of September 30, 2022, the estimated future payments related to these underground storage tanks were $26,898 and are recorded in other noncurrent liabilities on our consolidated balance sheets. The remaining balance of our deferred rent obligations was $8,807 as of September 30, 2022 and is scheduled to be fully paid by January 31, 2023. As of September 30, 2022, our aggregate annual minimum rent payable to SVC under the SVC Leases was $243,914. 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, 2022 and 2021. 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 $509 and $502 for the three months ended September 30, 2022 and 2021, respectively, and $1,413 and $1,505 for the nine months ended September 30, 2022 and 2021, respectively. Lease Costs Our lease costs are included in various balances in our consolidated statements of operations and comprehensive income, as shown in the following tables. For the three and nine months ended September 30, 2022 and 2021, our lease costs consisted of the following: Classification in our Consolidated Three Months Ended 2022 2021 Operating lease costs: SVC Leases Real estate rent expense $ 60,886 $ 58,951 Operating lease costs: other Real estate rent expense 684 2,447 Variable lease costs: SVC Leases Real estate rent expense 3,169 2,332 Variable lease costs: other Real estate rent expense 215 168 Total real estate rent expense 64,954 63,898 Operating lease costs: equipment and other Site level operating expense and selling, general and administrative expense 324 710 Financing lease costs: equipment and other Site level operating expense 75 53 Short-term lease costs Site level operating expense and selling, general and administrative expense 101 171 Amortization of finance lease assets: Depreciation and amortization expense 553 553 Amortization of finance lease assets: other Depreciation and amortization expense 922 553 Interest on finance lease liabilities: Interest expense, net 291 305 Interest on finance lease liabilities: other Interest expense, net 177 134 Sublease income Nonfuel revenues (509) (502) Net lease costs $ 66,888 $ 65,875 Classification in our Consolidated Nine Months Ended 2022 2021 Operating lease costs: SVC Leases Real estate rent expense $ 182,814 $ 177,040 Operating lease costs: other Real estate rent expense 1,865 7,529 Variable lease costs: SVC Leases Real estate rent expense 9,448 6,303 Variable lease costs: other Real estate rent expense 626 506 Total real estate rent expense 194,753 191,378 Operating lease costs: equipment and other Site level operating expense and selling, general and administrative expense 2,259 2,332 Financing lease costs: equipment and other Site level operating expense 306 152 Short-term lease costs Site level operating expense and selling, general and administrative expense 313 513 Amortization of finance lease assets: Depreciation and amortization expense 1,659 1,290 Amortization of finance lease assets: other Depreciation and amortization expense 2,510 1,212 Interest on finance lease liabilities: Interest expense, net 883 716 Interest on finance lease liabilities: other Interest expense, net 514 323 Sublease income Nonfuel revenues (1,413) (1,505) Net lease costs $ 201,784 $ 196,411 Lease Assets and Liabilities As of September 30, 2022 and December 31, 2021, our operating lease assets and liabilities consisted of the following: September 30, December 31, Operating lease assets: SVC Leases $ 1,583,634 $ 1,649,142 Other 16,917 10,384 Total operating lease assets $ 1,600,551 $ 1,659,526 Current operating lease liabilities: SVC Leases $ 112,447 $ 114,372 Other 3,856 3,633 Total current operating lease liabilities $ 116,303 $ 118,005 Noncurrent operating lease liabilities: SVC Leases $ 1,565,516 $ 1,648,112 Other 13,548 7,247 Total noncurrent operating lease liabilities $ 1,579,064 $ 1,655,359 During the nine months ended September 30, 2022 and 2021, we paid $212,038 and $208,905, respectively, for amounts that had been included in the measurement of our operating lease liabilities. As of September 30, 2022 and December 31, 2021, our finance lease assets and liabilities consisted of the following: September 30, December 31, Finance lease assets: SVC Leases $ 24,883 $ 26,542 Other 17,109 15,781 Total finance lease assets $ 41,992 $ 42,323 Current finance lease liabilities: SVC Leases $ 1,519 $ 1,517 Other 3,628 2,814 Total current finance lease liabilities $ 5,147 $ 4,331 Noncurrent finance lease liabilities: SVC Leases $ 24,924 $ 25,974 Other 14,031 13,240 Total noncurrent finance lease liabilities $ 38,955 $ 39,214 During the nine months ended September 30, 2022 and 2021, we paid $3,360 and $1,721, respectively, for amounts that had been included in the measurement of our finance lease liabilities. Lease Maturities and Other Information The annual and total remaining operating lease payments and present value of operating lease liabilities for our operating leases that had remaining noncancelable lease terms in excess of one year as of September 30, 2022, were as follows: SVC Leases Other Total Years ended December 31: 2022 $ 67,213 $ 1,185 $ 68,398 2023 255,469 4,059 259,528 2024 251,295 2,961 254,256 2025 251,283 2,851 254,134 2026 251,278 2,495 253,773 Thereafter 1,538,649 7,249 1,545,898 Total operating lease payments 2,615,187 20,800 2,635,987 Less: present value discount (1) (937,224) (3,396) (940,620) Present value of operating lease liabilities $ 1,677,963 $ 17,404 $ 1,695,367 (1) 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, 2022, was approximately 11 years. Our weighted average discount rate for our operating leases as of September 30, 2022, was approximately 9.1%. The annual and total remaining finance lease payments and present value of finance lease liabilities for our finance leases that had remaining noncancelable lease terms in excess of one year as of September 30, 2022, were as follows: SVC Lease Other Total Years ended December 31: 2022 $ 660 $ 1,065 $ 1,725 2023 2,656 4,262 6,918 2024 2,722 3,820 6,542 2025 2,790 3,227 6,017 2026 2,860 3,024 5,884 Thereafter 22,126 4,177 26,303 Total finance lease payments 33,814 19,575 53,389 Less: present value discount (1) (7,371) (1,916) (9,287) Present value of finance lease liabilities $ 26,443 $ 17,659 $ 44,102 (1) The discount rate used to derive the present value of unpaid lease payments is based on our incremental borrowing rate. The weighted average remaining lease term for our finance leases as of September 30, 2022, was approximately 9 years. Our weighted average discount rate for our finance leases as of September 30, 2022, was approximately 4.3%. As a Lessor During the second and third quarters of 2022, we acquired the operating assets related to two travel centers we previously leased to franchisees. Rent revenues from these operating leases totaled zero and $595 for the three months ended September 30, 2022 and 2021, respectively, and $1,190 and $1,763 for the nine months ended September 30, 2022 and 2021, respectively. See Note 3 of this Quarterly Report for more information about these acquisitions. 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 properties we own to third parties to operate other retail operations. |
Leasing Transactions | 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, 2022, 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. Finance lease assets were included in other noncurrent assets other current liabilities other noncurrent liabilities Leasing Agreements with SVC As of September 30, 2022, we leased from SVC a total of 179 properties under five leases. We refer to these five leases collectively as the SVC Leases. The SVC Leases expire between 2029 and 2035, subject to our right to extend those leases. We have two renewal options of 15 years under each of the SVC Leases. 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, we recorded $28,201 in other noncurrent assets, $1,158 in other current liabilities and $27,046 in other noncurrent liabilities on our consolidated balance sheets in the first quarter of 2021. We recognized total real estate rent expense under the SVC Leases of $64,056 and $61,283 for the three months ended September 30, 2022 and 2021, respectively, and $192,262 and $183,343 for the nine months ended September 30, 2022 and 2021, respectively. Included in these rent expense amounts are percentage rent payable of $2,692 and $1,850 for the three months ended September 30, 2022 and 2021, respectively, and $8,029 and $4,827 for the nine months ended September 30, 2022 and 2021, 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. As of September 30, 2022, the estimated future payments related to these underground storage tanks were $26,898 and are recorded in other noncurrent liabilities on our consolidated balance sheets. The remaining balance of our deferred rent obligations was $8,807 as of September 30, 2022 and is scheduled to be fully paid by January 31, 2023. As of September 30, 2022, our aggregate annual minimum rent payable to SVC under the SVC Leases was $243,914. 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, 2022 and 2021. 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 $509 and $502 for the three months ended September 30, 2022 and 2021, respectively, and $1,413 and $1,505 for the nine months ended September 30, 2022 and 2021, respectively. Lease Costs Our lease costs are included in various balances in our consolidated statements of operations and comprehensive income, as shown in the following tables. For the three and nine months ended September 30, 2022 and 2021, our lease costs consisted of the following: Classification in our Consolidated Three Months Ended 2022 2021 Operating lease costs: SVC Leases Real estate rent expense $ 60,886 $ 58,951 Operating lease costs: other Real estate rent expense 684 2,447 Variable lease costs: SVC Leases Real estate rent expense 3,169 2,332 Variable lease costs: other Real estate rent expense 215 168 Total real estate rent expense 64,954 63,898 Operating lease costs: equipment and other Site level operating expense and selling, general and administrative expense 324 710 Financing lease costs: equipment and other Site level operating expense 75 53 Short-term lease costs Site level operating expense and selling, general and administrative expense 101 171 Amortization of finance lease assets: Depreciation and amortization expense 553 553 Amortization of finance lease assets: other Depreciation and amortization expense 922 553 Interest on finance lease liabilities: Interest expense, net 291 305 Interest on finance lease liabilities: other Interest expense, net 177 134 Sublease income Nonfuel revenues (509) (502) Net lease costs $ 66,888 $ 65,875 Classification in our Consolidated Nine Months Ended 2022 2021 Operating lease costs: SVC Leases Real estate rent expense $ 182,814 $ 177,040 Operating lease costs: other Real estate rent expense 1,865 7,529 Variable lease costs: SVC Leases Real estate rent expense 9,448 6,303 Variable lease costs: other Real estate rent expense 626 506 Total real estate rent expense 194,753 191,378 Operating lease costs: equipment and other Site level operating expense and selling, general and administrative expense 2,259 2,332 Financing lease costs: equipment and other Site level operating expense 306 152 Short-term lease costs Site level operating expense and selling, general and administrative expense 313 513 Amortization of finance lease assets: Depreciation and amortization expense 1,659 1,290 Amortization of finance lease assets: other Depreciation and amortization expense 2,510 1,212 Interest on finance lease liabilities: Interest expense, net 883 716 Interest on finance lease liabilities: other Interest expense, net 514 323 Sublease income Nonfuel revenues (1,413) (1,505) Net lease costs $ 201,784 $ 196,411 Lease Assets and Liabilities As of September 30, 2022 and December 31, 2021, our operating lease assets and liabilities consisted of the following: September 30, December 31, Operating lease assets: SVC Leases $ 1,583,634 $ 1,649,142 Other 16,917 10,384 Total operating lease assets $ 1,600,551 $ 1,659,526 Current operating lease liabilities: SVC Leases $ 112,447 $ 114,372 Other 3,856 3,633 Total current operating lease liabilities $ 116,303 $ 118,005 Noncurrent operating lease liabilities: SVC Leases $ 1,565,516 $ 1,648,112 Other 13,548 7,247 Total noncurrent operating lease liabilities $ 1,579,064 $ 1,655,359 During the nine months ended September 30, 2022 and 2021, we paid $212,038 and $208,905, respectively, for amounts that had been included in the measurement of our operating lease liabilities. As of September 30, 2022 and December 31, 2021, our finance lease assets and liabilities consisted of the following: September 30, December 31, Finance lease assets: SVC Leases $ 24,883 $ 26,542 Other 17,109 15,781 Total finance lease assets $ 41,992 $ 42,323 Current finance lease liabilities: SVC Leases $ 1,519 $ 1,517 Other 3,628 2,814 Total current finance lease liabilities $ 5,147 $ 4,331 Noncurrent finance lease liabilities: SVC Leases $ 24,924 $ 25,974 Other 14,031 13,240 Total noncurrent finance lease liabilities $ 38,955 $ 39,214 During the nine months ended September 30, 2022 and 2021, we paid $3,360 and $1,721, respectively, for amounts that had been included in the measurement of our finance lease liabilities. Lease Maturities and Other Information The annual and total remaining operating lease payments and present value of operating lease liabilities for our operating leases that had remaining noncancelable lease terms in excess of one year as of September 30, 2022, were as follows: SVC Leases Other Total Years ended December 31: 2022 $ 67,213 $ 1,185 $ 68,398 2023 255,469 4,059 259,528 2024 251,295 2,961 254,256 2025 251,283 2,851 254,134 2026 251,278 2,495 253,773 Thereafter 1,538,649 7,249 1,545,898 Total operating lease payments 2,615,187 20,800 2,635,987 Less: present value discount (1) (937,224) (3,396) (940,620) Present value of operating lease liabilities $ 1,677,963 $ 17,404 $ 1,695,367 (1) 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, 2022, was approximately 11 years. Our weighted average discount rate for our operating leases as of September 30, 2022, was approximately 9.1%. The annual and total remaining finance lease payments and present value of finance lease liabilities for our finance leases that had remaining noncancelable lease terms in excess of one year as of September 30, 2022, were as follows: SVC Lease Other Total Years ended December 31: 2022 $ 660 $ 1,065 $ 1,725 2023 2,656 4,262 6,918 2024 2,722 3,820 6,542 2025 2,790 3,227 6,017 2026 2,860 3,024 5,884 Thereafter 22,126 4,177 26,303 Total finance lease payments 33,814 19,575 53,389 Less: present value discount (1) (7,371) (1,916) (9,287) Present value of finance lease liabilities $ 26,443 $ 17,659 $ 44,102 (1) The discount rate used to derive the present value of unpaid lease payments is based on our incremental borrowing rate. The weighted average remaining lease term for our finance leases as of September 30, 2022, was approximately 9 years. Our weighted average discount rate for our finance leases as of September 30, 2022, was approximately 4.3%. As a Lessor During the second and third quarters of 2022, we acquired the operating assets related to two travel centers we previously leased to franchisees. Rent revenues from these operating leases totaled zero and $595 for the three months ended September 30, 2022 and 2021, respectively, and $1,190 and $1,763 for the nine months ended September 30, 2022 and 2021, respectively. See Note 3 of this Quarterly Report for more information about these acquisitions. 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 properties we own to third parties to operate other retail operations. |