Lease Accounting (Notes)

12 Months Ended

Dec. 31, 2023

LEASE ACCOUNTING:

Lessee Accounting

The Partnership leases terminal facilities, tank cars, office space, land and equipment under non-cancelable operating leases whose initial terms are typically five to 15 years, with some real estate leases having terms of 40 years or more, along with options that permit renewals for additional periods. At the inception of each, we determine if the arrangement is a lease or contains an embedded lease and review the facts and circumstances of the arrangement to classify lease assets as operating or finance leases under Topic 842. The Partnership has elected not to record any leases with terms of 12 months or less on our consolidated balance sheets.

At present, the majority of the Partnership’s active leases are classified as operating in accordance with Topic 842. Balances related to operating leases are included in operating lease ROU assets, accrued and other current liabilities, operating lease current liabilities and non-current operating lease liabilities in our consolidated balance sheets. Finance leases represent a small portion of the active lease agreements and are included in finance lease ROU assets, current maturities of long-term debt and long-term debt, less current maturities in our consolidated balance sheets. The ROU assets represent the Partnership’s right to use an underlying asset for the lease term and lease liabilities represent the obligation of the Partnership to make minimum lease payments arising from the lease for the duration of the lease term.

Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years or greater. The exercise of lease renewal options is typically at the sole discretion of the Partnership and lease extensions

are evaluated on a lease-by-lease basis. Leases containing early termination clauses typically require the agreement of both parties to the lease. At the inception of a lease, all renewal options reasonably certain to be exercised are considered when determining the lease term. Presently, the Partnership does not have leases that include options to purchase or automatic transfer of ownership of the leased property to the Partnership. The depreciable life of lease assets and leasehold improvements are limited by the expected lease term.

To determine the present value of future minimum lease payments, we use the implicit rate when readily determinable. Presently, because many of our leases do not provide an implicit rate, the Partnership applies its incremental borrowing rate based on the information available at the lease commencement date to determine the present value of minimum lease payments. The operating and finance lease ROU assets include any lease payments made and exclude lease incentives.

Minimum rent payments are expensed on a straight-line basis over the term of the lease. In addition, some leases require additional contingent or variable lease payments, which are based on the factors specific to the individual agreement. Variable lease payments the Partnership is typically responsible for include payment of real estate taxes, maintenance expenses and insurance.

For short-term leases (leases that have term of twelve months or less upon commencement), lease payments are recognized on a straight-line basis and no ROU assets are recorded.

The components of operating and finance lease amounts recognized in the accompanying consolidated balance sheets as of December 31, 2023 and 2022 were as follows:


	December 31,
	2023		2022
Operating leases:
Lease right-of-use assets, net	$	797	$	808
Operating lease current liabilities	56		45
Accrued and other current liabilities	5		1
Non-current operating lease liabilities	778		798
Finance leases:
Property, plant and equipment, net	$	1	$	1
Lease right-of-use assets, net	29		11

Current maturities of long-term debt	8		2
Long-term debt, less current maturities	19		9
Other non-current liabilities	—		1

The components of lease expense for the years ended December 31, 2023 and 2022 were as follows:


		Year Ended December 31,
	Income Statement Location	2023		2022
Operating lease costs:
Operating lease cost	Cost of goods sold	$	1	$	3
Operating lease cost	Operating expenses	69		63
Operating lease cost	Selling, general and administrative	18		22
Total operating lease costs		88		88
Finance lease costs:
Amortization of lease assets	Depreciation, depletion and amortization	—		—
Interest on lease liabilities	Interest expense, net of capitalized interest	—		—
Total finance lease costs		—		—
Short-term lease cost	Operating expenses	38		33
Variable lease cost	Operating expenses	16		13
Lease costs, gross		142		134
Less: Sublease income	Other revenue	42		40
Lease costs, net		$	100	$	94

The weighted-average remaining lease terms and weighted-average discount rates as of December 31, 2023 and 2022 were as follows:


	December 31,
	2023		2022
Weighted-average remaining lease term (years):
Operating leases	21		21
Finance leases	12		27
Weighted-average discount rate (%):
Operating leases	6	%	5	%
Finance leases	5	%	4	%

Cash flows and non-cash activity related to leases for the years ended December 31, 2023 and 2022 were as follows:


	Year Ended December 31,
	2023		2022


Operating cash flows from operating leases	$	(139)	$	(133)



Lease assets obtained in exchange for new finance lease liabilities	18		1
Lease assets obtained in exchange for new operating lease liabilities	5		41

Maturities of lease liabilities as of December 31, 2023 are as follows:


	Operating leases		Finance leases		Total
2024	$	96	$	7	$	103
2025	90		8		98
2026	81		4		85
2027	71		2		73
2028	70		1		71
Thereafter	979		12		991
Total lease payments	1,387		34		1,421
Less: present value discount	553		7		560
Present value of lease liabilities	$	834	$	27	$	861

Lessor Accounting

Sunoco LP leases or subleases a portion of its real estate portfolio to third-party companies as a stable source of long-term revenue. Sunoco LP’s lessor and sublease portfolio consists mainly of operating leases with convenience store operators. At this time, most lessor agreements contain five-year terms with renewal options to extend and early termination options based on established terms specific to the individual agreement.

Sunoco LP’s future minimum operating lease payments receivable as of December 31, 2023 are as follows:


	Lease Payments
2024	$	108
2025	99
2026	82
2027	63
2028	38
Thereafter	17
Total undiscounted cash flows	$	407