XML 39 R11.htm IDEA: XBRL DOCUMENT

Lease Disclosures (Notes)

6 Months Ended

Jun. 30, 2019

The Company engages in leasing activity as both a lessee and a lessor. The majority of the Company's lease portfolio originated when the Company was actively involved in the development and financing of IHOP restaurants prior to the franchising of the restaurant to the franchisee. This activity included the Company's leasing or purchase of the site on which the restaurant was located and subsequently leasing/subleasing the site to the franchisee. With a few exceptions, the Company ended this practice in 2003 and the Company's current lease activity is predominantly comprised of renewals of existing lease arrangements and exercises of options on existing lease arrangements.

The Company currently leases from third parties the real property on which approximately 610 IHOP franchisee-operated restaurants and one Applebee's franchisee-operated restaurant are located; the Company (as lessor) subleases the property to the franchisees that operate those restaurants. The Company also leases property it owns to the franchisees that operate approximately 60 IHOP restaurants and one Applebee's restaurant. The Company leases from third parties the real property on which 69 Applebee's company-operated restaurants are located. The Company also leases office space for its principal corporate office in Glendale, California and restaurant support centers in Kansas City, Missouri and Raleigh, North Carolina. The Company does not have a significant amount of non-real estate leases.

The Company's existing leases related to IHOP restaurants generally provided for an initial term of 20 to 25 years with most having one or more five-year renewal options. Option periods were not included in determining liabilities and right-of-use assets related to operating leases. Approximately 240 of the Company's leases contain provisions requiring additional rent payments to the Company (as lessor) based on a percentage of restaurant sales. Approximately 260 of the Company's leases contain provisions requiring additional rent payments by the Company (as lessee) based on a percentage of restaurant sales.

The individual lease agreements do not provide information to determine the implicit rate in the agreements. The Company made significant judgments in determining the incremental borrowing rates that were used in calculating operating lease liabilities as of the adoption date. Due to the large number of leases, the Company applied a portfolio approach by grouping the leases based on the original lease term. The Company estimated the rate for each grouping primarily by reference to yield rates on debt issuances by companies of a similar credit rating as the Company, U.S. Treasury rates as of the adoption date and adjustments for differences in years to maturity.

The Company's lease cost for the three and six months ended June 30, 2019 was as follows:



	Three months ended June 30, 2019			Six months ended June 30, 2019
Finance lease cost:	(In millions)
Amortization of right-of-use assets	$	1.3		$	2.6
Interest on lease liabilities	2.0			4.1
Operating lease cost	26.8			53.2
Variable lease cost	0.6			1.3
Short-term lease cost	0.0			0.0
Sublease income	(27.3		)	(55.4		)
Lease cost	$	3.4		$	5.8

Future minimum lease payments under noncancelable leases as lessee as of June 30, 2019 were as follows:



	Finance Leases			Operating Leases
	(In millions)
2019 (remaining six months)	$	10.3		$	46.2
2020	20.1			94.6
2021	16.5			77.8
2022	14.7			70.0
2023	11.6			57.5
Thereafter	65.0			217.7
Total minimum lease payments	138.2			563.8
Less: interest/imputed interest	(41.0		)	(117.0		)
Total obligations	97.2			446.8
Less: current portion	(12.9		)	(67.7		)
Long-term lease obligations	$	84.3		$	379.1

The weighted average remaining lease term as of June 30, 2019 was 8.6 years for finance leases and 7.9 years for operating leases. The weighted average discount rate as of June 30, 2019 was 10.4% for finance leases and 5.8% for operating leases.

During the three and six months ended June 30, 2019, the Company made the following payments for leases:



	Three months ended June 30, 2019		Six months ended June 30, 2019
	(In millions)
Principal payments on finance lease obligations	$	3.5	$	7.0
Interest payments on finance lease obligations	$	2.0	$	4.1
Payments on operating leases	$	22.8	$	45.8
Variable lease payments	$	0.6	$	1.5

The Company's income from operating leases for the three and six months ended June 30, 2019 was as follows:



	Three months ended June 30, 2019		Six months ended June 30, 2019
	(In millions)
Minimum lease payments	$	25.4	$	51.1
Variable lease income	2.8		6.0
Total operating lease income	$	28.2	$	57.1

Future minimum payments to be received as lessor under noncancelable operating leases as of June 30, 2019 were as follows:



	(In millions)
2019 (remaining six months)	$	53.1
2020	107.3
2021	101.5
2022	98.4
2023	94.0
Thereafter	289.6
Total minimum rents receivable	743.9

The Company's income from direct financing leases for the three and six months ended June 30, 2019 was as follows:



	Three months ended June 30, 2019		Six months ended June 30, 2019
	(In millions)
Interest income	$	1.3	$	2.7
Variable lease income	0.3		0.7
Total operating lease income	$	1.6	$	3.4

Future minimum payments to be received as lessor under noncancelable direct financing leases as of June 30, 2019 were as follows:



	(In millions)
2019 (remaining six months)	$	7.9
2020	14.7
2021	11.6
2022	8.2
2023	3.6
Thereafter	3.8
Total minimum rents receivable	49.8
Less: unearned income	(10.0		)
Total net investment in direct financing leases	39.8
Less: current portion	(11.2		)
Long-term investment in direct financing leases	$	28.6

Lease Disclosures