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Leases

12 Months Ended

Dec. 29, 2020

The Company leases restaurant facilities, office space and certain equipment that expire on various dates through September 2037. Lease terms for restaurants in traditional shopping centers generally include a base term of 10 years, with options to extend these leases for additional periods of five to 15 years.

The Company’s leases typically contain rent escalations over the lease term. The Company recognizes expense for these leases on a straight-line basis over the lease term. Additionally, tenant incentives used to fund leasehold improvements are recognized when earned and reduce the right-of-use asset related to the lease. These are amortized through the right-of-use asset as reductions of expense over the lease term. Total rent expense for operating leases for 2020, 2019 and 2018 was approximately $39.9 million, $40.8 million and $41.7 million, respectively.

Some of the Company’s leases include rent escalations based on inflation indexes and fair market value adjustments. Certain leases contain contingent rental provisions that include a fixed base rent plus an additional percentage of the restaurant’s sales in excess of stipulated amounts. Lease expense associated with rent escalation and contingent rental provisions is not material and is included within operating lease cost. Operating lease liabilities are calculated using the prevailing index or rate at lease commencement. Subsequent escalations in the index or rate and contingent rental payments are recognized as variable lease expenses. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company elected the practical expedient to account for lease and non-lease components as a single component for substantially all lease types.

As most of the Company’s leases do not provide an implicit rate, the Company used its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

During 2020, the onset of the COVID-19 pandemic impacted the Company’s business significantly, including temporary closures of our dining rooms starting in March 2020. During the second and third quarters of 2020, we were able to negotiate with the majority of our landlords to obtain rent abatements or defer rent amounts due during the second quarter, and in some cases, the periods of the respective lease terms were extended earlier than as proscribed in the lease as part of the rent concessions. In the case where the lease term was extended, we remeasured the remaining consideration in the contract. The total rent that was deferred for lease amendments that has been executed through December 29, 2020 was $4.4 million and $0.3 million was recognized as a reduction to lease expense in fiscal 2020. In addition, the COVID-19 pandemic has had an impact to the underlying asset values for certain of our restaurants. In 2020, we recorded right-of-use asset impairment charges of $0.5 million which reduced the carrying value of certain operating lease assets to their respective estimated fair value.

Supplemental balance sheet information related to leases is as follows (in thousands):


Classification		December 29, 2020		December 31, 2019
Assets
Operating	Operating lease assets, net	$	195,618	$	209,717
Finance	Finance lease assets, net (1)	7,822		771
Total leased assets		$	203,440	$	210,488
Liabilities
Current lease liabilities
Operating	Current operating lease liabilities	$	26,094	$	22,775
Finance	Current finance lease liabilities (2)	1,800		510
Long-term lease liabilities
Operating	Long-term operating lease liabilities	210,454		225,014
Finance	Long-term finance lease liabilities (2)	6,056		281
Total lease liabilities		$	244,404	$	248,580

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(1)The finance lease assets are included in property and equipment, net in the Consolidated Balance Sheets.

(2)The current portion of the finance lease liabilities is included in accrued expenses and other current liabilities, and the long-term portion is included in other long-term liabilities in the Consolidated Balance Sheets.

The components of lease costs are as follows (in thousands):


		Year Ended		Year Ended
Classification		December 29, 2020		December 31, 2019
Operating lease cost	Occupancy, other restaurant operating costs, and general and administrative expenses	$	39,870	$	40,753
	Closure costs, loss on disposals and other	1,309		802
Finance lease cost
Amortization of lease assets	Depreciation and amortization	1,142		661
Interest on lease liabilities	Interest expense, net	163		73
		42,484		42,289
Sublease income	Franchising royalties and fees, and other	(1,266)		(651)
Total lease cost, net		$	41,218	$	41,638

Future minimum lease payments required under existing leases as of December 29, 2020 are as follows (in thousands):


	Operating Leases		Finance Leases		Total
2021	$	41,505	$	2,278	$	43,783
2022	43,126		2,151		45,277
2023	41,608		2,006		43,614
2024	39,961		1,849		41,810
2025	38,320		734		39,054
Thereafter	129,067		13		129,080
Total lease payments	333,587		9,031		342,618
Less: Imputed interest	97,039		1,175		98,214
Present value of lease liabilities	$	236,548	$	7,856	$	244,404

Operating lease payments include $124.4 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $6.1 million of legally binding minimum lease payments for leases signed but not yet commenced.

Lease term and discount rate are as follows:


	December 29, 2020		December 31, 2019
Weighted average remaining lease term (years):
Operating	8.5		10.0
Finance	4.2		2.9
Weighted average discount rate:
Operating	8.6	%	8.6	%
Finance	6.8	%	7.2	%

Supplemental disclosures of cash flow information related to leases are as follows (in thousands):


Cash paid for lease liabilities:	2020		2019
Operating leases	$	39,864	$	43,203
Finance leases	1,240		763
	$	41,104	$	43,966
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases	$	8,310	$	11,211
Finance leases	8,291		253
	$	16,601	$	11,464

Leases