Arhaus, Inc.ARHS
Arhaus, Inc. Leases Disclosure
Leases
The Company leases real estate and equipment under operating and finance leases, some of which are from related parties as discussed in Note 12 — Related Party Transactions. The most significant obligations under these lease agreements require the payments of periodic rentals, real estate taxes, insurance and maintenance costs. Depending on particular Showroom leases, the Company can also owe a percentage rent payment if particular Showrooms meet certain sales figures. Certain prior year amounts have been reclassified to conform to the current year presentation.
The following table summarizes the amounts recognized in our consolidated balance sheets related to leases (amounts in thousands):
December 31, | |||||||||||||||||
| Consolidated Balance Sheets Classification | 2025 | 2024 | |||||||||||||||
| Assets | |||||||||||||||||
| Operating lease assets | Operating right-of-use assets | $ | 391,274 | $ | 322,302 | ||||||||||||
| Finance lease assets | Financing right-of-use assets | 33,275 | 36,105 | ||||||||||||||
| Total leased assets | $ | 424,549 | $ | 358,407 | |||||||||||||
| Liabilities | |||||||||||||||||
| Current operating leases | Current portion of operating lease liabilities | $ | 60,115 | $ | 42,247 | ||||||||||||
| Non-current operating leases | Operating lease liabilities, long-term | 467,226 | 402,916 | ||||||||||||||
| Total operating lease liabilities | 527,341 | 445,163 | |||||||||||||||
| Current finance leases | Current portion of financing lease liabilities | 862 | 1,024 | ||||||||||||||
| Non-current finance leases | Financing lease liabilities, long-term | 52,374 | 53,312 | ||||||||||||||
| Total finance lease liabilities | 53,236 | 54,336 | |||||||||||||||
| Total lease liabilities | $ | 580,577 | $ | 499,499 | |||||||||||||
The components of lease cost recognized within our consolidated statements of comprehensive income are as follows (amounts in thousands):
Year Ended | ||||||||||||||||||||
December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Lease costs | ||||||||||||||||||||
Operating lease costs(1) | $ | 70,998 | $ | 60,474 | $ | 52,715 | ||||||||||||||
| Finance lease costs | ||||||||||||||||||||
Amortization of right-of-use assets(1) | 2,234 | 2,527 | 2,513 | |||||||||||||||||
Interest expense on lease liabilities(2) | 5,121 | 5,197 | 5,154 | |||||||||||||||||
Variable lease costs(3) | 46,590 | 34,441 | 38,381 | |||||||||||||||||
Short term lease costs(4) | 176 | 183 | 184 | |||||||||||||||||
| Total lease costs | $ | 125,119 | $ | 102,822 | $ | 98,947 | ||||||||||||||
(1) Operating lease costs and amortization of finance lease right-of-use assets are included in cost of goods sold or selling, general and administrative expenses on the consolidated statements of comprehensive income based on the nature and use of the asset as defined in our accounting policy.
(2) Included in interest income, net on the consolidated statements of comprehensive income.
(3) Represents variable lease payments under operating and finance lease agreements, primarily associated with contingent rent that is based on a percentage of retail sales over contractual levels as well as charges associated with common area maintenance, property taxes and insurance. These costs are included in cost of goods sold or selling, general and administrative expenses on the consolidated statements of comprehensive income based on the nature and use of the asset as defined in our accounting policy. Includes $0.4 million of month-to-month lease costs for the year ended December 31, 2023. There were no month-to-month lease costs for the years ended December 31, 2025 and 2024 respectively.
(4) Represents leases with an initial term of 12 months or less which are not recorded on the balance sheet and instead expensed on a straight-line basis over the lease term, excluding expenses relating to leases with a lease term of one month or less.
We often have options to renew lease terms for Showrooms and other assets. The exercise of lease renewal options is generally at our sole discretion. In addition, certain lease agreements may be terminated prior to their original expiration date at our
discretion. We evaluate each renewal and termination option at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors. The weighted average remaining lease terms are as follows:
Year Ended | ||||||||||||||
December 31, | ||||||||||||||
| Weighted Average Remaining Lease Term (In Years) | 2025 | 2024 | ||||||||||||
| Operating leases | 8.62 | 8.81 | ||||||||||||
| Finance leases | 19.53 | 20.08 | ||||||||||||
When readily determinable, we use the discount rate implicit within the lease as determined at the time of lease commencement. However, the discount rate implicit within many of our leases is generally not determinable at the time of lease commencement and therefore the Company determines the discount rate based on its IBR. For leases in which the discount rate was not explicit, the Company utilized a market-based approach to estimate the IBR, which required significant judgment. The Company estimated the base IBR based on an analysis of (i) yields on the Company’s 2021 Credit Facility, as well as comparable companies and (ii) unsecured yields and discount rates. The Company applied adjustments to the base IBRs to account for full collateralization and lease term. The weighted average discount rates used to measure our lease liabilities are as follows:
Year Ended | ||||||||||||||
December 31, | ||||||||||||||
| Weighted Average Discount Rate | 2025 | 2024 | ||||||||||||
| Operating leases | 6.03 | % | 6.05 | % | ||||||||||
| Finance leases | 9.68 | % | 9.65 | % | ||||||||||
Future lease liabilities at December 31, 2025 are as follows (amounts in thousands):
| Year Ending December 31, | Operating Lease Liabilities (1) | Finance Lease Liabilities | Total Lease Liabilities | |||||||||||||||||
| 2026 | $ | 86,729 | $ | 5,954 | $ | 92,683 | ||||||||||||||
| 2027 | 85,130 | 6,002 | 91,132 | |||||||||||||||||
| 2028 | 79,213 | 5,696 | 84,909 | |||||||||||||||||
| 2029 | 77,212 | 5,238 | 82,450 | |||||||||||||||||
| 2030 | 72,183 | 5,228 | 77,411 | |||||||||||||||||
| Thereafter | 285,208 | 99,496 | 384,704 | |||||||||||||||||
| Total lease payments | 685,675 | 127,614 | 813,289 | |||||||||||||||||
| Less: Amounts representing interest | (158,334) | (74,378) | (232,712) | |||||||||||||||||
| Total | $ | 527,341 | $ | 53,236 | $ | 580,577 | ||||||||||||||
(1) Includes leases with related parties. See Note 12 — Related Party Transactions for amounts leased from related parties.
At December 31, 2025, the Company has entered into leases for Showrooms and equipment which have not yet commenced with expected lease terms ranging from 10 to 15 years. The aggregate minimum rental payments over the term of the leases of approximately $232.4 million are not included in the above table.
Supplemental cash flow information related to leases is as follows (amounts in thousands):
Year Ended | ||||||||||||||||||||
December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||||||
| Operating cash flows for operating leases | $ | 80,042 | $ | 68,912 | $ | 57,070 | ||||||||||||||
| Operating cash flows for finance leases | 5,051 | 4,902 | 4,875 | |||||||||||||||||
| Financing cash flows for finance leases | 705 | 927 | 763 | |||||||||||||||||
| Right-of-use assets obtained in exchange for lease obligations: | ||||||||||||||||||||
| Operating leases | $ | 111,711 | $ | 58,478 | $ | 79,721 | ||||||||||||||
| Finance leases | (662) | 185 | 2,843 | |||||||||||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Mar 11, 2024 | |
| 2022 | Mar 9, 2023 | |
| 2021 | Mar 30, 2022 | |
About Leases Disclosures
Lease disclosures under ASC 842 provide a comprehensive view of a company's leased asset portfolio, including the split between operating and finance leases, discount rates used to present-value future payments, and the maturity schedule of lease obligations. This section reveals a significant source of off-balance-sheet commitments that were largely hidden before the current standard.
Key signals: the weighted-average discount rate affects the size of recorded lease liabilities — a higher rate reduces the reported obligation, so compare the chosen rate against the company's incremental borrowing rate. The operating versus finance lease mix affects both EBITDA and operating income presentation. Watch the maturity table for concentration risk: large payment cliffs in specific years may create cash flow pressure. Variable lease payments excluded from the liability measurement represent real obligations that do not appear on the balance sheet. Compare total lease costs against prior-year operating lease expense to assess the true economic burden.