Chuy's Holdings, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Leases

Leases

3 Months Ended

Mar. 31, 2019

Leases

The Company determines if a contract contains a lease at inception. The Company's material long-term operating lease agreements are for the land and buildings for our restaurants as well as our corporate offices. The initial lease terms range from 10 years to 15 years, most of which include renewal options of 10 to 15 years. The lease term is generally the minimum of the noncancelable period or the lease term including renewal options which are reasonably certain of being exercised up to a term of approximately 20 years.

Some of the leases provide for base rent, plus additional rent based on gross sales, as defined in each lease agreement. The Company is also generally obligated to pay certain real estate taxes, insurance and common area maintenance charges, and various other expenses related to properties, which are expensed as incurred.

Rent expense is paid to various landlords including several companies owned and controlled by the Company’s founders and one of its former executive officers.

Components of operating lease costs are as follows for the thirteen weeks ended March 31, 2019:



Lease cost	Classification	Unrelated Parties		Related Party		Total
Operating lease cost ^(a)	Occupancy, General and administrative expenses and Property and equipment, net	$	5,436	$	576	$	6,012
Variable lease cost	Occupancy	101		151		252
		$	5,537	$	727	$	6,264

^(a) Includes short-term operating lease costs which are immaterial.

Weighted average lease term and discount rate are as follows:



	March 31, 2019
Weighted average remaining lease term (in years)	15.5
Weighted average discount rate	7.8	%

Supplemental cash flow disclosures for the thirteen weeks ended March 31, 2019:



	March 31, 2019
Cash paid for operating lease liabilities	$	6,286
Operating lease assets obtained in exchange for operating lease liabilities ^(a)	168,984

^(a) Includes the transition adjustment for the adoption of Leases (Topic 842) as discussed in Note 3, Recent Accounting Pronouncements in the notes to our unaudited condensed consolidated financial statements. As a result of the store closures, the Company also shortened the remaining life of the related leases and recorded a $1.3 million reduction to the operating lease assets and liabilities during the first quarter of 2019.

Supplemental balance sheet disclosures:



Operating leases	Classification	March 31, 2019
Right-of-use assets	Operating lease assets	$	167,088

Current lease liabilities	Operating lease liability	$	9,106
Non-current lease liabilities	Operating lease liability, less current portion	213,245
Total lease liabilities		$	222,351

Future minimum rent payments for our operating leases for each of the next five years as of March 31, 2019 are as follows:



	Unrelated Parties		Related Party		Total
Fiscal year ending:
Remainder of 2019	$	17,607	$	1,709	$	19,316
2020	23,977		2,286		26,263
2021	24,261		2,292		26,553
2022	24,104		1,439		25,543
2023	24,472		1,446		25,918
Thereafter	261,547		1,205		262,752
Total minimum lease payments	375,968		10,377		386,345
Less: imputed interest	162,202		1,792		163,994
Present value of lease liabilities	$	213,766	$	8,585	$	222,351

As of March 31, 2019, operating lease payments include $142.0 million related to options to extend lease terms that are reasonable certain of being exercised and exclude approximately $13.8 million of legally binding minimum lease payments for leases signed but not yet commenced.

As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting, future minimum rent payments for our operating leases for each of the next five years and in total are as follows as of December 30, 2018:



	Unrelated Parties		Related Party		Total
Fiscal year ending:
2019	$	23,638	$	2,279	$	25,917
2020	25,184		2,286		27,470
2021	25,620		2,292		27,912
2022	25,463		1,439		26,902
2023	25,832		1,446		27,278
Thereafter	294,112		1,205		295,317
Total minimum lease payments	$	419,849	$	10,947	$	430,796

The above future minimum rental amounts exclude the amortization of deferred lease incentives, renewal options that are not reasonably assured of renewal, and contingent rent. The Company generally has escalating rents over the term of the leases and records rent expense on a straight-line basis.