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Leases

6 Months Ended

Jun. 25, 2019

(3) Leases

We recognize right-of-use assets and lease liabilities for both real estate and equipment leases that have a term in excess of one year. As of June 25, 2019, these amounts were as follows (in thousands):


	Leases
	Real estate		Equipment		Total
Operating lease right-of-use assets	$	482,086	$	3,732	$	485,818

Current portion of operating lease liabilities		15,230		1,242		16,472
Operating lease liabilities, net of current portion		519,330		2,490		521,820
Total operating lease liabilities	$	534,560	$	3,732	$	538,292

Information related to our real estate leases as of and for the 13 and 26 week periods ended June 25, 2019 was as follows (in thousands):


		13 Weeks Ended		26 Weeks Ended
Real estate costs		June 25, 2019		June 25, 2019
Operating lease	$	13,486	$	26,913
Variable lease		403		851
Short-term lease		30		60
Total lease costs	$	13,919	$	27,824


Real estate lease liability maturity analysis				Total
2019			$	24,955
2020				51,032
2021				51,659
2022				52,498
2023				52,462
Thereafter				725,365
Total			$	957,971
Less interest				423,411
Total discounted operating lease liabilities			$	534,560


		13 Weeks Ended		26 Weeks Ended
Real estate leases other information		June 25, 2019		June 25, 2019
Cash paid for amounts included in measurement of operating lease liabilities	$	12,166	$	24,114
Right-of-use assets obtained in exchange for new operating lease liabilities	$	18,532	$	26,872
Weighted-average remaining lease term (years)				17.83
Weighted-average discount rate				6.77

Operating lease payments exclude approximately $18.3 million of minimum lease payments for executed real estate leases that we have not yet taken possession. In addition to the above operating leases, as of June 25, 2019 we had one finance lease with a right-of-use asset balance and lease liability balance of approximately $1.8 million and $2.1 million,

respectively. The right-of-use asset balance is included as a component of other assets and the lease liability balance as a component of other liabilities in the unaudited condensed consolidated balance sheets.

We lease land and/or buildings for the majority of our restaurants under non-cancelable lease agreements. These leases typically have initial terms ranging from 10 to 15 years, and certain renewal options for one or more five-year periods. When determining the lease term, we include option periods for which failure to renew the lease imposes a penalty on us in such an amount that renewal appears, at the inception of the lease, to be reasonably certain. The primary penalty to which we are subject is the economic detriment associated with the existence of leasehold improvements which might become impaired if we choose not to continue the use of the leased property. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants that would impact lease classification.

Beginning in 2019, we recognize operating lease right-of-use assets and operating lease liabilities for real estate leases, including our restaurant leases and Support Center lease, as well as certain restaurant equipment leases based on the present value of the lease payments over the lease term. We estimate the present value based on our incremental borrowing rate which corresponds to the underlying lease term. In addition, operating lease right-of-use assets are reduced for accrued rent and increased for any initial direct costs recognized at lease inception. For leases commencing in 2019 and later, we account for lease and non-lease components as a single lease component.

Certain of our operating leases contain predetermined fixed escalations of the minimum rent over the lease term. For these leases, we recognize the related rent expense on a straight-line basis over the lease term. We may receive rent concessions or leasehold improvement incentives upon opening a restaurant that is subject to a lease which we consider when determining straight-line rent expense. We also may receive rent holidays, which would begin on the possession date and end when the store opens, during which no cash rent payments are typically due under the terms of the lease. Rent holidays are included in the lease term when determining straight-line rent expense. In recognizing straight-line rent expense, we record the difference between amounts charged to operations and amounts paid as accrued rent. Straight-line rent expense is included as an operating lease cost in the table above.

Certain of our operating leases contain clauses that provide for additional contingent rent based on a percentage of sales greater than certain specified target amounts. We recognize contingent rent expense prior to the achievement of the specified target that triggers the contingent rent, provided achievement of the target is considered probable. In addition, certain of our operating leases have variable escalations of the minimum rent that depend on an index or rate. We recognize variable rent expense when the escalation is determinable. Contingent rent and variable rent expense are included as variable lease costs in the table above.

The following is a schedule of future minimum lease payments required for real estate and equipment operating leases that have a remaining term in excess of one year as of December 25, 2018 (in thousands):


	Operating Leases
2019	$	50,030
2020		49,582
2021		49,917
2022		50,237
2023		49,854
Thereafter		677,710
Total	$	927,330

Rent expense for operating leases consisted of the following for the 13 and 26 week periods ended June 26, 2018 (in thousands):


	13 Weeks Ended		26 Weeks Ended
	June 26, 2018		June 26, 2018
Minimum rent—occupancy	$	11,836	$	23,369
Contingent rent		283		601
Rent expense, occupancy		12,119		23,970
Minimum rent—equipment and other		1,399		2,959
Rent expense	$	13,518	$	26,929