Minimum lease payment significantly less than rent expense
Hi, Guys!
I am looking at one company that stated that the future minimum operating lease payments will be $769,000 in 2015. In the 10-k for the next year, the management shared information that the rent expense they incurred in 2015 was $1.7 million.
The company leases two properties:
- 208,120 sq. ft. property in Ohio with lease expiring in June 2016 (they renew it every 3 years)
- 7,691 sq. ft. property in Illinois with lease expiring in December 2015 (they renew it every year)
Does the $1 million discrepancy look suspicious to you?
A lot of retailers pay sales-based rent, i.e. the mall or shopping center takes a percentage of the revenue. If the company you're looking at is a retailer that would be the most likely explanation.
The company could also have an option on the lease that they exercised. For example, if the 200k sqft facility is a warehouse perhaps they originally only leased 100k sqft but then exercised an option to lease another 100k sqft. These types of arrangements are very common too.
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