Leases

Leasing Arrangements as a Lessor

The Company’s leasing activities consist principally of leasing certain land and buildings as well as subleasing certain buildings to franchise operators. The land and building portions for the majority of these leases are classified as operating leases and have lease terms expiring through May 2037. The leases classified as direct financing leases are related to owned and subleased properties that were refranchised in fiscal year 2017 (see note 6 - Refranchising of Company Drive-Ins). The terms of these leases expire through September 2031. These leases include provisions for contingent rentals that may be received on the basis of a percentage of sales in excess of stipulated amounts. Income is not recognized on contingent rentals until sales exceed the stipulated amounts. Some leases contain escalation clauses over the lives of the leases. For property owned by third parties, the lease term runs concurrently with the term of the third-party lease arrangement. Most of the leases contain renewal option periods of five years at the end of the initial term.

Components of net investment in direct financing leases are as follows at August 31:



	2018			2017
Minimum lease payments receivable	$	17,068		$	18,156
Less unearned income	(5,217		)	(5,932		)
Net investment in direct financing leases	11,851			12,224
Less amount due within one year	(460		)	(371		)
Amount due after one year	$	11,391		$	11,853

Initial direct costs incurred in the negotiation and consummation of direct financing lease transactions have not been material. Accordingly, no portion of unearned income has been recognized to offset those costs.

Future minimum rental payments receivable as of August 31, 2018, are as follows:



	Operating		Direct Financing
Years ended August 31:
2019	$	7,124	$	1,156
2020	7,544		1,269
2021	7,787		1,365
2022	7,804		1,362
2023	7,884		1,362
Thereafter	60,331		10,554
	$	98,474	$	17,068
Less unearned income			$	(5,217	)
			$	11,851

Leasing Arrangements as a Lessee

Certain Company Drive-Ins lease land and buildings from third parties. These leases, with lease terms expiring through January 2037, include provisions for contingent rents that may be paid on the basis of a percentage of sales in excess of stipulated amounts. For the majority of leases, the land portions are classified as operating leases, and the building portions are classified as capital leases.

Future minimum lease payments on operating and capital leases as of August 31, 2018, are as follows:



	Operating		Capital
Years ended August 31:
2019	$	8,198	$	3,489
2020	8,173		3,194
2021	7,536		3,109
2022	6,393		2,597
2023	6,437		2,415
Thereafter	44,017		4,541
Total minimum lease payments ⁽¹⁾	$	80,754	19,345
Less amount representing interest averaging 5.4%			(3,888		)
Present value of net minimum lease payments			15,457
Less amount due within one year			(2,454		)
Amount due after one year			$	13,003

_______________

(1)

Minimum payments have not been reduced by future minimum rentals receivable under noncancellable operating and capital subleases of $25.9 million and $1.3 million, respectively. They also do not include contingent rentals which may be due under certain leases. Contingent rentals for capital leases amounted to $0.2 million, $0.3 million and $0.9 million in fiscal years 2018, 2017 and 2016, respectively.

Total rent expense for all operating leases consists of the following for the years ended August 31:



	2018			2017			2016
Minimum rentals	$	8,039		$	11,224		$	12,441
Contingent rentals	140			283			284
Total rent expense	8,179			11,507			12,725
Less sublease rentals	(3,464		)	(2,513		)	(2,372		)
Net rent expense	$	4,715		$	8,994		$	10,353