LEASES

9 Months Ended

Jul. 09, 2023

Nature of leases — The Company owns restaurant sites and also leases restaurant sites from third parties. Some of these owned or leased sites are leased and/or subleased to franchisees. Initial terms of our real estate leases are generally 20 years, exclusive of options to renew, which are generally exercisable at our sole discretion for 1 to 20 years. In some instances, our leases have provisions for contingent rentals based upon a percentage of defined revenues. Many of our restaurants also have rent escalation clauses and require the payment of property taxes, insurance, and maintenance costs. Variable lease costs include contingent rent, cost-of-living index adjustments, and payments for additional rent such as real estate taxes, insurance, and common area maintenance, which are excluded from the measurement of the lease liability.

As lessor, our leases and subleases primarily consist of restaurants that have been leased to franchisees in connection with refranchising transactions. Revenues from leasing arrangements with our franchisees are presented in “Franchise rental revenues” in the accompanying condensed consolidated statements of earnings, and the related expenses are presented in “Franchise occupancy expenses.”

The following table presents rental income (in thousands):


	Quarter				Year-to-date
	July 9, 2023		July 10, 2022		July 9, 2023		July 10, 2022
Operating lease income - franchise	$	56,052	$	53,703	$	185,285	$	178,048
Variable lease income - franchise	29,857		26,274		92,836		81,556
Amortization of favorable and unfavorable sublease contracts, net	339		91		477		119
Franchise rental revenues	$	86,248	$	80,068	$	278,598	$	259,723

Operating lease income - closed restaurants and other (1)	$	1,692	$	1,663	$	5,717	$	4,728

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(1)Primarily relates to closed restaurant properties included in “Other operating expenses, net” in our condensed consolidated statements of earnings.