XML 29 R15.htm IDEA: XBRL DOCUMENT

LEASES

6 Months Ended

Jun. 26, 2024

Nature of Leases

Shake Shack currently leases all of its Company-operated Shacks, the home office and certain equipment under various non-cancelable lease agreements that expire on various dates through 2045. 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 benefit 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, the Company has identified a lease within the contract, and therefore a right of use asset and lease liability are recorded on the Condensed Consolidated Balance Sheets. Upon possession of a leased asset, the Company determines whether the lease is an operating or finance lease. All of the Company's real estate leases are classified as operating leases and most 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.

For operating leases, fixed lease payments are recognized as operating lease costs on a straight-line basis over the lease term on the Condensed Consolidated Statements of Income in the following line items. Lease expense incurred before a Shack opens is recorded in Pre-opening costs. Once a Company-operated Shack opens, the straight-line lease expense and contingent rent, if applicable, are recorded in Occupancy and related expenses. Many of these 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. Finance leases are recognized in depreciation expense on a straight-line basis over the remaining lease term, along with recognition of interest expense associated with accretion of the lease liability.

For both operating and finance leases that contain lease and non-lease components, the components are combined and accounted for as a single lease component. Variable lease costs for both operating and finance leases, if any, are recognized as incurred. Leases with a term of 12 months or less are deemed short-term and are not recognized on the Condensed Consolidated Balance Sheets. Fixed lease payments for short-term leases are recognized on a straight-line basis over the lease term.

The Company calculates operating lease assets and lease liabilities as the present value of fixed lease payments over the reasonably certain lease term beginning at the commencement date. 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, and lease asset.

A summary of operating and finance right-of-use assets and lease liabilities were as follows:


	Classification	June 26 2024		December 27 2023
Operating leases	Operating lease assets	$	419,527	$	398,296
Finance leases	Property and equipment, net	12,278		11,801
Total right-of-use assets		$	431,805	$	410,097




Operating leases:
	Operating lease liabilities, current	$	53,140	$	49,004
	Long-term operating lease liabilities	487,600		464,533
Finance leases:
	Other current liabilities	3,789		3,435
	Other long-term liabilities	8,969		8,721
Total lease liabilities		$	553,498	$	525,693

The components of lease expense were as follows:


			Thirteen Weeks Ended				Twenty-Six Weeks Ended
		Classification	June 26 2024		June 28 2023		June 26 2024		June 28 2023
Operating lease cost		Occupancy and related expenses Pre-opening costs General and administrative expenses	$	19,165	$	16,523	$	37,655	$	32,598
Finance lease cost:
	Amortization of right-of-use assets	Depreciation and amortization expense	1,075		703		2,043		1,440
	Interest on lease liabilities	Interest expense	207		72		387		142
Variable lease cost		Occupancy and related expenses Pre-opening costs General and administrative expenses	5,523		4,682		10,729		8,452
Short-term lease cost		Occupancy and related expenses	190		273		406		513
Total lease cost			$	26,160	$	22,253	$	51,220	$	43,145

As of June 26, 2024, future minimum lease payments for operating and finance leases consisted of the following:


	Operating Leases		Finance Leases
2024(1)	$	29,716	$	2,306
2025	85,913		4,151
2026	86,224		3,397
2027	81,318		2,719
2028	76,993		1,493
Thereafter	342,271		228
Total minimum payments	702,435		14,294
Less: imputed interest	174,160		1,536
Total lease liabilities	$	528,275	$	12,758

(1)Operating leases are net of certain tenant allowance receivables that were reclassified to Other current assets as of June 26, 2024.

As of June 26, 2024, the Company had additional operating lease commitments of $134,340 for non-cancelable leases without a possession date, which commence in 2024 or later. These lease commitments are materially consistent with leases recognized on the Condensed Consolidated Balance Sheets.

A summary of lease terms and discount rates for operating and finance leases were as follows:


		June 26 2024		December 27 2023
Weighted average remaining lease term (years):
	Operating leases	8.9		8.9
	Finance leases	4.7		4.7
Weighted average discount rate:
	Operating leases	6.2	%	6.2	%
	Finance leases	5.7	%	5.6	%

Supplemental cash flow information related to leases was as follows:


		Twenty-Six Weeks Ended
		June 26 2024		June 28 2023
Cash paid for amounts included in the measurement of lease liabilities:
	Operating cash flows from operating leases	$	40,095	$	34,454
	Operating cash flows from finance leases	387		142
	Financing cash flows from finance leases	1,918		1,504
Right-of-use assets obtained in exchange for lease obligations:
	Operating leases	43,822		37,625
	Finance leases	2,520		1,408

LEASES