Net Lease QSR Research Report
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www.bouldergroup.com THE NET LEASE QSR MARKET REPORT Q2 2015 QSR (FRANCHISEE) PROPERTIES MEDIAN ASKING CAP RATES MARKET OVERVIEW Cap rates in the net lease quick service restaurant (QSR) sector reached 5.90% in the second quarter of 2015 for properties leased to franchisees. This represented a 35 basis point decline from the prior year. Corporate leased QSR properties experienced a 10 basis point decline to 5.65% during the same time period. The QSR sector differs from other net lease retail sectors as the majority of the properties are leased to franchisees rather than corporate entities. However, the cap rate spread between corporate guaranteed and franchisee guaranteed QSR properties compressed from 50 to 30 basis points in the second quarter of 2015. Investors have been increasingly willing to lower credit standards for increased yield in the QSR sector, especially in major markets or for properties with favorable lease structures (i.e. larger or more frequent rental escalations). McDonald’s ground leases continually represent the lowest cap rates for all QSR properties (3.95%) due to their superior credit rating (S&P: A), long term leases, low price points, reoccurring rental escalations and strong brand recognition. Cap rates for QSR properties leased to franchisees are influenced by the guarantor who can range from a one unit operator to a franchisee with hundreds of restaurants. Franchisee backed QSR locations with major brands provide investors a security level, despite the lack of a corporate guarantee. A surplus of 1031 exchange investors with low equity requirements are attracted to the QSR sector as these properties have a median asking price of $2 million. Additionally, QSR properties typically feature recognizable tenants with long lease terms, no landlord responsibilities and rental escalations. The median remaining lease term in the second quarter of 2015 in the QSR sector was 16 years. As a result, the premium for net lease QSR assets was 60 basis points over the entire retail net lease market. This represented a 10 basis point increase from the prior year. Sale leaseback transactions by QSR operators have been able to increase supply and more specifically the supply of long term leased properties. In the current record high pricing environment, franchisees are able to unlock the value of their owned real estate and are able to use the capital for expansion, remodeling of existing locations or the paydown of existing debt. The single tenant net lease QSR sector will remain active as the lower price points, rental escalations and typical NNN lease structures of this asset type continue to attract private and 1031 exchange investors. With cap rate levels at historic lows for net lease retail, investors have altered their investment criteria to include franchisee credit in their search for increased yield. QSR PROPERTIES MEDIAN ASKING PRICE Median Tenant Price All QSR $2,034,500 Burger King $1,836,565 KFC $1,333,946 McDonald's (Ground Lease) $2,529,000 Panera Bread $3,374,723 Pizza Hut $747,862 Starbucks $1,930,636 Taco Bell $2,444,596 Wendy's $2,411,362 QSR (CORPORATE) PROPERTIES MEDIAN ASKING CAP RATES Tenant Q2 2014 (Previous) Q2 2015 (Current) Basis Point Change All Corporate QSR 5.75% 5.65% -10 McDonald's (Ground Lease)* 4.00% 3.95% -5 Panera Bread 5.25% 5.08% -17 Starbucks 5.50% 5.07% -43 Tenant Q2 2014 (Previous) Q2 2015 (Current) Basis Point Change All Franchisee QSR 6.25% 5.90% -35 Burger King 6.50% 5.95% -55 KFC 6.00% 5.55% -45 Pizza Hut 6.25% 6.25% 0 Taco Bell 5.75% 5.40% -35 Wendy's 5.75% 5.65% -10 * Ground leased properties were not included in the All Corporate QSR ..category.
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The Boulder Group’s Research Department has released a new research report providing comprehensive numbers and analysis of the activity in the National Net Lease Quick Service Restaurant Market.
Transcript of Net Lease QSR Research Report
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THE NET LEASEQSR MARKET REPORT
Q2 2015
QSR (FRANCHISEE) PROPERTIESMEDIAN ASKING CAP RATES
MARKET OVERVIEW
Cap rates in the net lease quick service restaurant (QSR) sector reached 5.90% in the second quarter of 2015 for properties leased to franchisees. This represented a 35 basis point decline from the prior year. Corporate leased QSR properties experienced a 10 basis point decline to 5.65% during the same time period. The QSR sector differs from other net lease retail sectors as the majority of the properties are leased to franchisees rather than corporate entities. However, the cap rate spread between corporate guaranteed and franchisee guaranteed QSR properties compressed from 50 to 30 basis points in the second quarter of 2015. Investors have been increasingly willing to lower credit standards for increased yield in the QSR sector, especially in major markets or for properties with favorable lease structures (i.e. larger or more frequent rental escalations). McDonalds ground leases continually represent the lowest cap rates for all QSR properties (3.95%) due to their superior credit rating (S&P: A), long term leases, low price points, reoccurring rental escalations and strong brand recognition. Cap rates for QSR properties leased to franchisees are influenced by the guarantor who can range from a one unit operator to a franchisee with hundreds of restaurants. Franchisee backed QSR locations with major brands provide investors a security level, despite the lack of a corporate guarantee.A surplus of 1031 exchange investors with low equity requirements are attracted to the QSR sector as these properties have a median asking price of $2 million. Additionally, QSR properties typically feature recognizable tenants with long lease terms, no landlord responsibilities and rental escalations. The median remaining lease term in the second quarter of 2015 in the QSR sector was 16 years. As a result, the premium for net lease QSR assets was 60 basis points over the entire retail net lease market. This represented a 10 basis point increase from the prior year. Sale leaseback transactions by QSR operators have been able to increase supply and more specifically the supply of long term leased properties. In the current record high pricing environment, franchisees are able to unlock the value of their owned real estate and are able to use the capital for expansion, remodeling of existing locations or the paydown of existing debt.The single tenant net lease QSR sector will remain active as the lower price points, rental escalations and typical NNN lease structures of this asset type continue to attract private and 1031 exchange investors. With cap rate levels at historic lows for net lease retail, investors have altered their investment criteria to include franchisee credit in their search for increased yield.
QSR PROPERTIES MEDIANASKING PRICE
MedianTenant PriceAll QSR $2,034,500Burger King $1,836,565KFC $1,333,946McDonald's (Ground Lease) $2,529,000Panera Bread $3,374,723Pizza Hut $747,862Starbucks $1,930,636Taco Bell $2,444,596Wendy's $2,411,362
QSR (CORPORATE) PROPERTIESMEDIAN ASKING CAP RATES
Tenant Q2 2014 (Previous)
Q2 2015 (Current)
Basis Point Change
All Corporate QSR 5.75% 5.65% -10McDonald's (Ground Lease)* 4.00% 3.95% -5Panera Bread 5.25% 5.08% -17Starbucks 5.50% 5.07% -43
Tenant Q2 2014 (Previous)
Q2 2015 (Current)
Basis Point Change
All Franchisee QSR 6.25% 5.90% -35Burger King 6.50% 5.95% -55KFC 6.00% 5.55% -45Pizza Hut 6.25% 6.25% 0Taco Bell 5.75% 5.40% -35Wendy's 5.75% 5.65% -10
* Ground leased properties were not included in the All Corporate QSR ..category.
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THE NET LEASEQSR MARKET REPORT
Q2 2015
QSR MEDIAN ASKING CAP RATE BY REGION
WEST
MOUNTAINMIDWEST
SOUTH
NORT
HEAS
T
NORT
HEAS
T
SOUTH
MIDWESTMOUNTAIN
WEST
5.55%
5.50%
5.60%5.90%
4.80%
Tenant Total Number of Locations Ticker Symbol Market Cap
Arby's 3,400 Private PrivateBurger King 13,000+ QSR $18 BCarl's Jr. 1,385 Private PrivateChick Fil A 1,850 Private PrivateChipotle 1,700+ CMG $20 BDunkin' Donuts 11,000+ DNKN $5 BHardee's 1,944 Private PrivateJack in the Box 2,200 JACK $3 BKFC 18,875 YUM $39 BMcDonald's 35,000+ MCD $94 BPanda Express 1,746 Private PrivatePanera Bread 1,800 PNRA $4 BPizza Hut 15,605 YUM $39 BPopeyes 2,000+ PKLI $1.4 BSonic Drive-In 3,517 SONC $1.5 BStarbucks 21,536 SBUX $83 BTaco Bell 6,500 YUM $39 BWendy's 6,515 WEN $3 BWhataburger 750+ Private Private
SELECTED COMPANY COMPARISON
Leases can be guaranteed by franchisees or corporations.
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THE NET LEASEQSR MARKET REPORT
Q2 2015
2015. The Boulder Group. Information herein has been obtained from databases owned and maintained by The Boulder Group as well as third party sources. We have not verified the information and we make no guarantee, warranty or representation about it. This information is provided for general illustrative purposes and not for any specific recommendation or purpose nor under any circumstances shall any of the above information be deemed legal advice or counsel. Reliance on this information is at the risk of the reader and The Boulder Group expressly disclaims any liability arising from the use of such information. This information is designed exclusively for use by The Boulder Group clients and cannot be reproduced, retransmitted or distributed without the express written consent of The Boulder Group.
FOR MORE INFORMATION
AUTHORJohn Feeney | Vice [email protected]
Randy Blankstein | [email protected]
Jimmy Goodman | [email protected]
Zach Wright | Research [email protected]
CONTRIBUTORS
QSR VS RETAIL NET LEASE MARKET CAP RATES
ASKING CAP RATE BYLEASE TERM REMAINING
Q2 2014 Q2 2015
Sector (Previous) (Current)
QSR Sector 6.00% 5.80%
Retail Net Lease Market 6.50% 6.40%
QSR Premium (bps) 50 60
Lease Term Remaining Cap Rate
20+ 5.64%
15-19 5.75%
10-14 5.96%
Under 10 6.30%
MEDIAN NATIONAL CLOSED CAP RATE SPREAD
QSR ASKING CAP RATE BY GUARANTOR
Spread
Sector Closed Asking (bps)
QSR Sector 5.84% 5.66% 18
Corporate Franchise SpreadCap Rate Cap Rate (bps)
5.65% 5.90% 30
