AutoZone NNN For Sale
In 1979, the company that is now AutoZone opened its first store under the name “Auto Shack” in Forrest City, Arkansas. These days, the business is a Fortune 500 company and has established itself as the leading retailer of auto parts in the continental U.S. It’s a publicly traded company that reported over $16 billion in revenue over the past 12 months.
With a growing population of DIY enthusiasts in America and the continuing increase in car ownership, AutoZone is set up for success for a long time to come. While it is a retailer, it is less susceptible to the impending threat of Amazon – generally speaking, people need car parts on short notice and benefit from the in-person guidance that AutoZone can offer.
AutoZone’s status as an investment-grade tenant combined with its corporate guarantee and ever-rising stock price cements it as a high-quality tenant for any commercial real estate investor.
Tenant Overview
AutoZone sells a variety of auto and light truck parts, chemicals, and accessories. With stores in 49 states plus the District of Columbia, AutoZone has wide reach throughout the country. It has the most stores in Texas, but across the nation, there are over 7,000 locations. The company has recently expanded its reach to Mexico, Puerto Rico, Brazil, and the U.S. Virgin Islands.
While AutoZone was founded in Arkansas, it’s now headquartered in Memphis, Tennessee. Its impressive reach throughout North America and even into South America has made it a hallmark of the auto parts industry. Plus, its corporate guarantee of every lease makes the company a strong net lease asset and lowers risk for investors.
| AutoZone NNN Lease at a Glance | |
| Average sale price | $2,145,800 |
| Average NOI (net operating income) | $119,000 monthly |
| Average square feet | 7,000 - 8,000 |
| Average cap rate | 5.8% |
| Average lot size | 0.5 - 1.5 acres |
| Typical lease term | 15 years |
| Escalators | 10% every 5 years (and options) |
| Typical location | Across primary and secondary markets, not always on dense retail corridors |
| Ticker symbol | NYSE: AZO |
AutoZone Lease Structure
AutoZone is not a franchise, so all of the stores are company-owned. This leads to more consistency across the types of leases signed. Typically, AutoZone will sign 15-year net leases, during which there are price bumps included in the primary term of 10% every five years. AutoZone uses a mix of NNN and NN leases.
NNN leases eliminate essentially all landlord responsibility, while NN leases make the property owner responsible for roof and structural repairs. For that reason, NN leases typically have higher rents.
The average cap rate, or capitalization rate, for an AutoZone net lease is 4.45%. Cap rate is a measure of a real estate investment based on its profitability and its return potential. Typically, cap rates around 5% are considered good. Lower rates within that range, like AutoZone’s, tend to indicate a lower-risk investment.
Why Choose a Net Lease Over a Gross Lease When Investing in Commercial Real Estate?
In the world of commercial real estate, there are two general types of leases: net leases and ground leases. These categories are usually seen as opposites, but when it comes to investment opportunities, there are many benefits associated with choosing a net lease. Let’s break down what each of these types really means.
When a tenant is paying rent according to a gross lease, they’re paying a fixed amount to use that space. Their rent won’t change due to operating expenses – that responsibility falls to the landlord. Net leases, on the other hand, are attractive because they allow landlords to pass any and all operating expenses over to their tenants.
When it comes to net leases, there are three tiers to consider: single (N), double (NN), and triple (NNN). As the tiers increase, the landlord is able to pass more and more expenses onto their tenant, absolving themselves of increased risk.
For example, single net leases (N leases) let the landlord pass property taxes onto the tenants – in addition to the cost of rent – but the landlord is still responsible for insurance, maintenance, repairs, and utilities. A triple-net lease, or NNN lease, will make all of those costs the responsibility of the client.
N leases are less common in the world of commercial real estate. Double-net leases, or NN leases, and triple-net leases, or NNN leases, are used much more frequently. That’s because, by passing more responsibilities on to the tenant, NN and NNN leases make real estate investments much better generators of consistent, passive income.
What Types of Net Leases Does AutoZone Operate Under?
Throughout the past decade, AutoZone has primarily used two different types of leases: NN and NNN leases. Older stores tend to use NN leases, in which the landlord is responsible for the costs of roof and structural repairs while the tenant covers everything else (property taxes, insurance, other maintenance, and more).
To compensate for the increased responsibilities of the landlord, NN leases typically have higher rent. Newer AutoZone stores will normally use NNN leases, which give the landlord much less responsibility and make for a truly passive investment. These leases offer rent increases during the primary term at a rate of 10% every five years.
How to Evaluate an AutoZone Net Lease
It’s important to consider both property value and tenant strength when evaluating an NNN lease. AutoZone locations are typically located in single-tenant properties, so it’s crucial to keep in mind that your tenant concentration can be only 100% or 0% – in other words, if AutoZone vacates your property, you’ll be generating no cash flow until you find a new tenant.
You can make this scenario less likely by ensuring that the property you’re investing in meets the qualifications that AutoZone prefers in its locations. This is especially important because not all AutoZone stores are located along dense retail corridors, and many are placed in “B-grade” real estate, meaning it can be challenging to find another tenant.
On the plus side, NNN lease tenants like AutoZone are usually large companies with strong balance sheets, so you can count on your payments arriving on time each month. With a strong credit rating (AutoZone holds a BBB rating from Standard & Poor’s), you can rest assured that you won't be chasing down your tenant to get your hands on rent.
What Makes AutoZone an Attractive NNN Tenant?
AutoZone is a recognizable brand with a loyal customer base. The company’s store count goes up every quarter, and same-store sales are on a similar upward trajectory. Over the past five years, the company’s net sales have increased 44%, from $11.2 billion to over $16 billion.
Over the same period, operating profit has increased at an even higher rate – it’s gone from $1.8 billion to $3.3 billion, an 80% increase. In other words, AutoZone is not only growing but also discovering how to make more money more efficiently, expanding its margins.
Since going public in 1991, AutoZone’s stock has been consistently on an upward trend. Over the past five years, AutoZone’s stock has increased in price by over 250%. In 2018, it was clocking in at around $600 per share. These days, one share is priced at over $2,000. Clearly, AutoZone has seen substantial growth – and this business looks like it will keep on thriving.
As an NNN tenant, commercial real estate investors can expect to see AutoZone continue expanding its domestic and international footprint, contributing to more and more brand recognition and success for the company. With a strong balance sheet, good credit rating, and promising financials, AutoZone is an attractive tenant with many successes ahead of it.
