18.3 Leases
Delhaize Group as Lessee - Finance and operating lease commitments
Delhaize Group as Lessor - Expected Finance and Operating Lease Income
Delhaize Group Annual Report 2014 125
The classification of a lease agreement depends on the allocation of risk and rewards incidental to the ownership of the leased
asset. 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.
As detailed in Note 8, Delhaize Group operates a significant number of its stores under finance and operating lease
arrangements. Various leased properties 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 of our continued operations, which were not reduced by
expected minimum sublease income of €42 million, due over the term of non-cancellable subleases, as of December 31, 2014:
Continued operations
(in millions of
2015
2016
2017
2018
2019
Thereafter
Total
Finance Leases
Future minimum lease payments
119
101
89
77
69
554
1 009
Less amount representing interest
(50)
(47)
(42)
(7)
(33)
(286)
(465)
Present value of minimum lease payments
69
54
47
70
36
268
544
Of which related to closed store lease obligations
6
6
5
4
4
32
57
Operating Leases
Future minimum lease payments (for non-cancellable leases)
290
239
200
158
115
509
1 511
Of which related to closed store lease obligations 20 18 15 12 8 38 111
Following the closing of Delhaize Group's agreed sale of Sweetbay, Harveys and Reid's and the planned sale of Bottom Dollar
Food (see Note 5), the Group provides guarantees for a number of existing operating or finance lease contracts, which are
disclosed in Note 34. Lease commitments that will be transferred to the buyer are not included in the table above.
The average effective interest rate for finance leases was 11.0%, 11.4% and 11.6% at December 31, 2014, 2013 and 2012,
respectively. The fair value of the finance lease obligations has been determined using discounted cash flow models using the
lease terms and cost of debt as the main inputs and is categorized as Level 2.
The fair value of the finance lease obligations amounted to €682 million (at an average market rate of 4.2%), €709 million (5.0%)
and €842 million (5.1%) at December 31, 2014, 2013 and 2012, respectively.
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 €314 million (of which €18 million related to discontinued operations), €321 million (of
which €43 million related to discontinued operations) and €326 million (of which €51 million related to discontinued operations) in
2014, 2013 and 2012, respectively. Rent expenses are predominantly included 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 2014, 2013 and 2012.
Sublease payments received and recognized in income were €22 million in 2014, €21 million in 2013 and €21 million in 2012.
Delhaize Group signed lease agreements for additional store facilities under construction at December 31, 2014. 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 are approximately €8 million.
Provisions for €97 million, €113 million and €107 million at December 31, 2014, 2013 and 2012, 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 occasionally acts as a lessor for certain owned or leased property, mainly in connection with closed stores that
have been sub-leased to other parties, and retail units in Delhaize Group shopping centers or within a Delhaize Group store. At
December 31, 2014, 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.
The undiscounted expected future minimum lease payments to be received under non-cancellable operating leases as at
December 31, 2014 can be summarized as follows:
