Subsequent Events

6 Months Ended

Jul. 29, 2023

Subsequent Events [Abstract]

SUBSEQUENT EVENT

SUBSEQUENT EVENT

On August 25, 2023, we simultaneously terminated the Synthetic Lease for our Apple Valley, CA distribution center (“AVDC”), took title to the AVDC property and completed sale and leaseback transactions for the AVDC and 22 owned store locations (“SLB Stores”). The transactions, which were completed with the same buyer-lessor of our four other regional distribution centers, also included a five-year extension of the lease for our Columbus, OH distribution center (“CODC”). The aggregate gross cash consideration received in the transaction was $300.1 million, which we used to pay transaction expenses, fully pay off the 2023 Synthetic Lease for approximately $101 million and repay borrowings under the 2022 Credit Agreement. The accounting treatment for these transactions has not yet been finalized; however, our initial expectations are disclosed below.

We expect to allocate a portion of the cash consideration received to the extension of the lease for CODC and we expect that cash consideration to be treated as a lease incentive. We expect the remainder of the cash consideration received to be allocated to the sale-leaseback transactions. In accordance with sale-leaseback accounting guidelines, the remaining cash received will be compared, on an individual property basis, to the fair market value of the properties. Any property sales determined to be above-market sales will give rise to an aggregate off-market adjustment liability, with any below market sales resulting in an aggregate off-market adjustment to net proceeds on the sale and a corresponding increase in prepaid rent associated with the

leases. The aggregate net book value of AVDC and the SLB Stores assets was approximately $122.0 million as of July 29, 2023. As a result, we expect to record a significant gain on the sale of assets in the third quarter of 2023.

We expect that the leases we entered into with the buyer-lessor will be treated as operating leases, in which case we would record the right of use assets within operating lease right of use asset in our consolidated balance sheets. For above-market transactions, expected future payments to the buyer-lessor would be allocated between the lease liability and the off-market adjustment liability. The leases will have an initial term of 20 years and multiple extension options. The purchase and sale agreement restricts us from drawing on the 2022 Credit Agreement for any purpose other than working capital, general corporate, operational requirements or capital expenditures for 180 days following the closing of the transactions unless our availability under the 2022 Credit agreement exceeds $500 million as of the end of a quarterly reporting period.

Our aggregate initial annual cash payments to the buyer-lessor for AVDC and the SLB stores are approximately $23 million and the payments will escalate two percent annually.

We currently expect to close sale and leaseback transactions with respect to two additional owned store locations in the third quarter of 2023, subject to due diligence and other customary closing conditions.