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LEASES

3 Months Ended

Mar. 30, 2022

Leases [Abstract]

LEASES

LEASES

Nature of Leases

Shake Shack currently leases all of its domestic Company-operated Shacks, the home office and certain equipment under various non-cancelable lease agreements that expire on various dates through 2044. The Company evaluates contracts entered into to determine whether the contract involves the use of property or equipment, which is either explicitly or implicitly identified in the contract. The Company evaluates whether it controls the use of the asset, which is determined by assessing whether substantially all economic benefits from the use of the asset is obtained, and whether the Company has the right to direct the use of the asset. If these criteria are met and the Company has identified a lease, the contract is accounted for under the requirements of Accounting Standards Codification Topic 842.

Upon possession of a leased asset, the Company determines whether the lease is an operating or finance lease. Real estate leases are classified as operating leases and most of the equipment leases are classified as finance leases. Generally, real estate leases have initial terms ranging from 10 to 15 years and typically include two five-year renewal options. Renewal options are generally not recognized as part of the right-of-use assets and lease liabilities as it is not reasonably certain at commencement date that the Company would exercise the renewal options. Real estate leases typically contain fixed minimum rent payments and/or contingent rent payments which are based upon sales in excess of specified thresholds. When the achievement of such sales thresholds are deemed to be probable, contingent rent is accrued in proportion to the sales recognized during the period.

Fixed minimum rent payments are recognized on a straight-line basis over the lease term from the date the Company takes possession of the leased property. Lease expense incurred before a Shack opens is recorded in Pre-opening costs on the Condensed Consolidated Statements of Income (Loss). Once a domestic Company-operated Shack opens, the straight-line lease expense and contingent rent, if applicable, is recorded in Occupancy and related expenses on the Condensed Consolidated Statements of Income (Loss). Many of the leases also require the Company to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in Occupancy and related expenses on the Condensed Consolidated Statements of Income (Loss).

The Company uses its incremental borrowing rate ("IBR") in determining the present value of future lease payments as there are no explicit rates provided in the leases. The IBR used to measure the lease liability is derived from the average of the yield curves obtained from using the notching method and the recovery rate method. The most significant assumption in calculating the IBR is the Company's credit rating and is subject to judgment. The credit rating used to develop the IBR is determined by utilizing the credit ratings of other public companies with similar financial information as SSE Holdings.

The Company expends cash for leasehold improvements to build out and equip leased properties. Generally, a portion of the leasehold improvements and building costs are reimbursed by the landlords through landlord incentives pursuant to agreed-upon terms in the lease agreements. Landlord incentives usually take the form of cash, full or partial credits against future minimum or contingent rents otherwise payable by the Company, or a combination thereof. In most cases, landlord incentives are received after the Company takes possession of the property and as milestones are met during the construction of the property. The Company includes these amounts in the measurement of the initial operating lease liability, which are also reflected as a reduction to the initial measurement of the right-of-use asset.

A summary of operating and finance lease assets and lease liabilities as of March 30, 2022 and December 29, 2021 were as follows:

			Classification			March 30 2022						December 29 2021
Operating leases			Operating lease assets			$	346,128					$	347,277
Finance leases			Property and equipment, net			6,733						6,810
Total right-of-use assets						$	352,861					$	354,087
Operating leases:
			Operating lease liabilities, current			$	36,951					$	35,519
			Long-term operating lease liabilities			399,487						400,113
Finance leases:
			Other current liabilities			2,697						2,711
			Other long-term liabilities			4,246						4,303
Total lease liabilities						$	443,381					$	442,646

The components of lease expense for the thirteen weeks ended March 30, 2022 and March 31, 2021 were as follows:

									Thirteen Weeks Ended
						Classification			March 30 2022						March 31 2021
Operating lease cost						Occupancy and related expenses Pre-opening costs General and administrative expenses			$	13,681					$	12,330
Finance lease cost:
			Amortization of right-of-use assets			Depreciation and amortization expense			753						613
			Interest on lease liabilities			Interest expense			52						54
Variable lease cost						Occupancy and related expenses Other operating expenses Pre-opening costs General and administrative expenses			3,504						2,851
Short-term lease cost						Occupancy and related expenses			98						82
Total lease cost									$	18,088					$	15,930

As of March 30, 2022, future minimum lease payments for operating and finance leases consisted of the following:

			Operating Leases						Finance Leases
2022(1)			$	34,003					$	2,252
2023			64,088						2,205
2024			64,127						1,450
2025			62,986						718
2026			59,230						425
Thereafter			255,488						273
Total minimum payments			539,922						7,323
Less: imputed interest			111,396						392
Total lease liabilities			$	428,526					$	6,931

(1)Operating leases are net of certain tenant allowance receivables that were reclassified to Other current assets as of March 30, 2022.

As of March 30, 2022 the Company had additional operating lease commitments of $129,255 for non-cancelable leases without a possession date, which begin to commence in 2022. These lease commitments are consistent with the leases that have been executed thus far.

A summary of lease terms and discount rates for operating and finance leases as of March 30, 2022 and December 29, 2021 were as follows:

						March 30 2022						December 29 2021
Weighted average remaining lease term (years):
			Operating leases			9.1						9.5
			Finance leases			5.3						5.4
Weighted average discount rate:
			Operating leases			5.2		%				3.9		%
			Finance leases			3.1		%				3.1		%

Supplemental cash flow information related to leases for the thirteen weeks ended March 30, 2022 and March 31, 2021 were as follows:

									Thirteen Weeks Ended
									March 30 2022						March 31 2021
Cash paid for amounts included in the measurement of lease liabilities:
			Operating cash flows from operating leases						$	13,525					$	11,825
			Operating cash flows from finance leases						52						54
			Financing cash flows from finance leases						747						602
Right-of-use assets obtained in exchange for lease obligations:
			Operating leases						5,541						11,095
			Finance leases						676						1,518

LEASES

LEASES

Nature of Leases

Shake Shack currently leases all of its domestic Company-operated Shacks, the home office and certain equipment under various non-cancelable lease agreements that expire on various dates through 2044. The Company evaluates contracts entered into to determine whether the contract involves the use of property or equipment, which is either explicitly or implicitly identified in the contract. The Company evaluates whether it controls the use of the asset, which is determined by assessing whether substantially all economic benefits from the use of the asset is obtained, and whether the Company has the right to direct the use of the asset. If these criteria are met and the Company has identified a lease, the contract is accounted for under the requirements of Accounting Standards Codification Topic 842.

Upon possession of a leased asset, the Company determines whether the lease is an operating or finance lease. Real estate leases are classified as operating leases and most of the equipment leases are classified as finance leases. Generally, real estate leases have initial terms ranging from 10 to 15 years and typically include two five-year renewal options. Renewal options are generally not recognized as part of the right-of-use assets and lease liabilities as it is not reasonably certain at commencement date that the Company would exercise the renewal options. Real estate leases typically contain fixed minimum rent payments and/or contingent rent payments which are based upon sales in excess of specified thresholds. When the achievement of such sales thresholds are deemed to be probable, contingent rent is accrued in proportion to the sales recognized during the period.

Fixed minimum rent payments are recognized on a straight-line basis over the lease term from the date the Company takes possession of the leased property. Lease expense incurred before a Shack opens is recorded in Pre-opening costs on the Condensed Consolidated Statements of Income (Loss). Once a domestic Company-operated Shack opens, the straight-line lease expense and contingent rent, if applicable, is recorded in Occupancy and related expenses on the Condensed Consolidated Statements of Income (Loss). Many of the leases also require the Company to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in Occupancy and related expenses on the Condensed Consolidated Statements of Income (Loss).

The Company uses its incremental borrowing rate ("IBR") in determining the present value of future lease payments as there are no explicit rates provided in the leases. The IBR used to measure the lease liability is derived from the average of the yield curves obtained from using the notching method and the recovery rate method. The most significant assumption in calculating the IBR is the Company's credit rating and is subject to judgment. The credit rating used to develop the IBR is determined by utilizing the credit ratings of other public companies with similar financial information as SSE Holdings.

The Company expends cash for leasehold improvements to build out and equip leased properties. Generally, a portion of the leasehold improvements and building costs are reimbursed by the landlords through landlord incentives pursuant to agreed-upon terms in the lease agreements. Landlord incentives usually take the form of cash, full or partial credits against future minimum or contingent rents otherwise payable by the Company, or a combination thereof. In most cases, landlord incentives are received after the Company takes possession of the property and as milestones are met during the construction of the property. The Company includes these amounts in the measurement of the initial operating lease liability, which are also reflected as a reduction to the initial measurement of the right-of-use asset.

A summary of operating and finance lease assets and lease liabilities as of March 30, 2022 and December 29, 2021 were as follows:

			Classification			March 30 2022						December 29 2021
Operating leases			Operating lease assets			$	346,128					$	347,277
Finance leases			Property and equipment, net			6,733						6,810
Total right-of-use assets						$	352,861					$	354,087
Operating leases:
			Operating lease liabilities, current			$	36,951					$	35,519
			Long-term operating lease liabilities			399,487						400,113
Finance leases:
			Other current liabilities			2,697						2,711
			Other long-term liabilities			4,246						4,303
Total lease liabilities						$	443,381					$	442,646

The components of lease expense for the thirteen weeks ended March 30, 2022 and March 31, 2021 were as follows:

									Thirteen Weeks Ended
						Classification			March 30 2022						March 31 2021
Operating lease cost						Occupancy and related expenses Pre-opening costs General and administrative expenses			$	13,681					$	12,330
Finance lease cost:
			Amortization of right-of-use assets			Depreciation and amortization expense			753						613
			Interest on lease liabilities			Interest expense			52						54
Variable lease cost						Occupancy and related expenses Other operating expenses Pre-opening costs General and administrative expenses			3,504						2,851
Short-term lease cost						Occupancy and related expenses			98						82
Total lease cost									$	18,088					$	15,930

As of March 30, 2022, future minimum lease payments for operating and finance leases consisted of the following:

			Operating Leases						Finance Leases
2022(1)			$	34,003					$	2,252
2023			64,088						2,205
2024			64,127						1,450
2025			62,986						718
2026			59,230						425
Thereafter			255,488						273
Total minimum payments			539,922						7,323
Less: imputed interest			111,396						392
Total lease liabilities			$	428,526					$	6,931

(1)Operating leases are net of certain tenant allowance receivables that were reclassified to Other current assets as of March 30, 2022.

As of March 30, 2022 the Company had additional operating lease commitments of $129,255 for non-cancelable leases without a possession date, which begin to commence in 2022. These lease commitments are consistent with the leases that have been executed thus far.

A summary of lease terms and discount rates for operating and finance leases as of March 30, 2022 and December 29, 2021 were as follows:

						March 30 2022						December 29 2021
Weighted average remaining lease term (years):
			Operating leases			9.1						9.5
			Finance leases			5.3						5.4
Weighted average discount rate:
			Operating leases			5.2		%				3.9		%
			Finance leases			3.1		%				3.1		%

Supplemental cash flow information related to leases for the thirteen weeks ended March 30, 2022 and March 31, 2021 were as follows:

									Thirteen Weeks Ended
									March 30 2022						March 31 2021
Cash paid for amounts included in the measurement of lease liabilities:
			Operating cash flows from operating leases						$	13,525					$	11,825
			Operating cash flows from finance leases						52						54
			Financing cash flows from finance leases						747						602
Right-of-use assets obtained in exchange for lease obligations:
			Operating leases						5,541						11,095
			Finance leases						676						1,518

X

- References

No definition available.

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- Definition

The entire disclosure for finance leases of lessee. Includes, but is not limited to, description of lessee's finance lease and maturity analysis of finance lease liability.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 842
-SubTopic 20
-URI http://asc.fasb.org/subtopic&trid=77888251

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- Definition

The entire disclosure for operating leases of lessee. Includes, but is not limited to, description of operating lease and maturity analysis of operating lease liability.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 842
-SubTopic 20
-URI http://asc.fasb.org/subtopic&trid=77888251

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