Chipotle 2008 Annual Report Download - page 54

The Company leased office and restaurant space from McDonald’s and its affiliates. Rent expense was $276
for such leases for the year ended December 31, 2006.
8. Leases
The Company generally operates its restaurants in leased premises. Lease terms for traditional shopping
center or building leases generally include combined initial and option terms of 20-25 years. Ground leases
generally include combined initial and option terms of 30-50 years. The option terms in each of these leases are
typically in five-year increments. Typically, the lease includes rent escalation terms every five years including
fixed rent escalations, escalations based on inflation indexes, and fair market value adjustments. Certain leases
contain contingent rental provisions based upon the sales of the underlying restaurants. The leases generally
provide for the payment of common area maintenance, property taxes, insurance and various other use and
occupancy costs by the Company. In addition, the Company is the lessee under non-cancelable leases covering
certain offices.
Future minimum lease payments required under existing operating leases as of December 31, 2008 are as
follows:
2009 ............................................................................ $ 88,119
2010 ............................................................................ 88,527
2011 ............................................................................ 88,402
2012 ............................................................................ 88,933
2013 ............................................................................ 90,065
Thereafter ....................................................................... 1,079,137
Total minimum lease payments ...................................................... $1,523,183
Minimum lease payments have not been reduced by minimum sublease rentals of $3,516 due in the future
under non-cancelable subleases.
Rental expense consists of the following:
For the years ended
December 31,
2008 2007 2006
Minimum rentals ................................................. $90,547 $70,375 $50,880
Contingent rentals ................................................ $ 1,602 $ 1,162 $ 955
Sublease rental income ............................................ $(1,201) $ (1,499) $ (3,365)
The Company has six sales and leaseback transactions. These transactions do not qualify for sales leaseback
accounting because of the Company’s deemed continuing involvement with the buyer-lessor due to fixed price
renewal options, which results in the transaction being recorded under the financing method. Under the financing
method, the assets remain on the consolidated balance sheet and the proceeds from the transactions are recorded
as a financing liability. A portion of lease payments are applied as payments of deemed principal and imputed
interest. The deemed landlord financing liability was $3,960 as of December 31, 2008. The future minimum lease
payments for each of the next five years and thereafter for deemed landlord financing obligations are as follows:
2009 .............................................................................. $ 366
2010 .............................................................................. 373
2011 .............................................................................. 391
2012 .............................................................................. 394
2013 .............................................................................. 394
Thereafter .......................................................................... 5,111
Total minimum lease payments ......................................................... 7,029
Less: Interest implicit in lease .......................................................... (3,069)
Total deemed landlord financing ........................................................ $3,960
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Annual Report