Food Lion 2012 Annual Report Download - page 124

122 // DELHAIZE GROUP FINANCIAL STATEMENTS’12
18.3 Leases
As described in Note 2.3, the classification of a lease agreement depends on the allocation of risk and rewards incidental to the
ownership of the leased item. When assessing the classification of a lease agreement, certain estimates and assumptions need
to be made and applied, which include, but are not limited to, the determination of the expected lease term and minimum lease
payments, the assessment of the likelihood of exercising options and estimation of the fair value of the lease property.
Delhaize Group as Lessee - Finance and operating lease commitments
As detailed in Note 8, Delhaize Group operates a significant number of its stores under finance and operating lease
arrangements. Various properties leased are (partially or fully) subleased to third parties, where the Group is therefore acting as
a lessor (see further below). Lease terms (including reasonably certain renewal options) generally range from 1 to 45 years with
renewal options ranging from 3 to 30 years.
The schedule below provides the future minimum lease payments, which were not reduced by expected minimum sublease
income of €35 million, due over the term of non-cancellable subleases, as of December 31, 2012:
(in millions of €)
2013
2014
2015
2016
2017
Thereafter
Total
Finance Leases
Future minimum lease payments
129
115
111
101
90
772
1 318
Less amount representing interest
(67)
(64)
(59)
(54)
(48)
(352)
(644)
Present value of minimum lease payments
62
51
52
47
42
420
674
Of which related to closed store lease obligations
6
5
5
5
4
33
58
Operating Leases
Future minimum lease payments (for non-cancellable leases)
312
260
231
195
164
754
1 916
Of which related to closed store lease obligations
21
18
15
14
12
49
129
The average effective interest rate for finance leases was 11.6%, 11.8% and 12.0% at December 31, 2012, 2011 and 2010,
respectively. The fair value of the Group’s finance lease obligations using an average market rate of 5.1% at December 31, 2012
was €842 million (2011: 4.5%, €1 016 million, 2010: 5.1%, €994 million).
The Group’s obligation under finance leases is secured by the lessors’ title to the leased assets.
Rent payments, including scheduled rent increases, are recognized on a straight-line basis over the minimum lease term. Total
rent expense under operating leases was €330 million (of which €2 million related to discontinued operations), €311 million (of
which €1 million related to discontinued operations) and €295 million in 2012, 2011 and 2010, respectively, being included
predominately in “Selling, general and administrative expenses.”
Certain lease agreements also include contingent rent requirements which are generally based on store sales and were
insignificant in 2012, 2011 and 2010.
Sublease payments received and recognized into income for 2012 were €21 million and €16 million in 2011 and 2010.
Delhaize Group signed lease agreements for additional store facilities under construction at December 31, 2012. The
corresponding lease terms as well as the renewal options generally range from 10 to 30 years. Total future minimum lease
payments for these agreements relating to stores under construction were approximately €52 million.
Provisions for €107 million, €46 million and €44 million at December 31, 2012, 2011 and 2010, respectively, representing the
discounted value of remaining lease payments, net of expected sublease income, for closed stores, were included in “Closed
Store Provisions” (see Note 20.1). The discount rate is based on the incremental borrowing rate for debt with similar terms to the
lease at the time of the store closing.
Delhaize Group as Lessor – Expected Finance and Operating Lease Income
As noted above, occasionally, Delhaize Group acts as a lessor for certain owned or leased property, mainly in connection with
closed stores that have been sub-leased to other parties, retail units in Delhaize Group shopping centers or within a Delhaize
Group store. At December 31, 2012, the Group did not enter into any lease arrangements with independent third party lessees
that would qualify as finance leases. Rental income is included in “Other operating income” in the income statement.