Burger King NNN For Sale
Burger King is the world’s second-largest hamburger chain, trailing behind only McDonald’s. Every day, Burger King restaurants serve over 11 million guests who are in pursuit of the chain’s classic Whopper, its novelty chicken fries, or its delicious desserts. Burger King prides itself on offering high-quality, great-tasting, affordable food.
The company was founded in Florida in 1954, and it has since grown to comprise over 18,700 locations in 100 countries and U.S. territories across the globe. While Burger King itself is not publicly traded, it’s owned by a public company that trades on the New York Stock Exchange: Restaurant Brands International.
In terms of real estate, Burger King is a non-investment grade tenant, but there are still plenty of perks when it comes to taking on a Burger King NNN lease. It provides stability in an uncertain market, and it has strong customer loyalty and brand recognition that set it apart from its competitors.
Tenant Overview
In 2014, Burger King was brought under the umbrella of Restaurant Brands International, which is also the parent company of the Canadian coffee chain Tim Hortons. With the resources it’s been able to access through Restaurant Brands International, Burger King has expanded rapidly and has put in place an attractive modernization plan.
Like other quick service restaurant (QSR) operators, Burger King is choosy about its locations. It prefers high-traffic areas with superior access, meaning easy ingress and egress, plenty of parking spaces, and room for a drive-thru line and window.
Burger King franchises the vast majority of its locations. That means that there are many different guarantors and lease agreements operating under the Burger King banner. There are, however, some general commonalities that you can expect to see when you’re considering investing in a Burger King NNN lease.
| Burger King NNN Lease at a Glance | |
| Average sale price | $2,010,000 |
| Average NOI (net operating income) | $108,540 monthly |
| Average square feet | 3,000 - 4,000 |
| Average lot size | 0.5 - 1.5 acres |
| Typical lease term | 10 -15 years |
| Escalators | 8% - 10% every 5 years |
| Typical location | Highly trafficked locations with superior access and room for a drive-thru |
| Ticker symbol | NYSE: QSR |
Burger King Lease Structure
Burger King typically signs ground leases with initial terms ranging from 10 to 20 years, although newer locations are normally signing leases with terms ranging from just 10 to 15 years. During the initial term, rent prices are set to rise between 8% and 10% every five years.
Ground leases are similar to NNN leases because landlords are generally not responsible for maintenance or other property costs. Plus, the company will often invest in the property by building a new store there, meaning they will likely stay longer.
The average cap rate, or capitalization rate, for a Burger King lease is 5.4%. Cap rates describe a real estate investment’s profitability and return potential. Generally, cap rates of 5% to 10% are considered good, so Burger King’s is within an attractive range. Since it’s on the lower end of that range, it means the investment is more stable.
Why Choose a Net Lease Over a Gross Lease When Investing in Commercial Real Estate?
In the world of commercial real estate, there are a few different types of leases to consider. You’ll find that there are many benefits to choosing to use a net lease, which is usually considered the opposite of a gross lease.
A gross lease means a tenant will pay a predetermined amount to use a space. That amount won’t change based on operating expenses, which generally fall under the landlord’s responsibilities. Conversely, net leases allow landlords to pass operating expenses to tenants.
There are three tiers of net leases: single, double, and triple. These categories are also called N, NN, and NNN leases. Each level passes additional expenses over to the tenant, exposing the property owner to less risk as the net lease levels increase.
Single net leases, or N leases, pass only property taxes onto the tenant in addition to the cost of the rent. The landlord then retains responsibility for costs related to insurance, maintenance, repairs, and utilities. N leases are less common for commercial real estate. Double net leases (NN leases) and triple net leases (NNN leases) are far more common.
What Types of Net Leases Does Burger King Operate Under?
Burger King typically uses ground leases with 10-year or 15-year initial terms, during which the rent bumps up every five years. Ground leases are similar to NNN leases in that the tenant is responsible for property taxes, insurance, and maintenance expenses.
The main difference between the two is that ground leases normally involve undeveloped commercial land being leased to tenants. Those tenants then have the right to develop on the property, so they own the buildings there. They still have to pay rent for the land, and if the lease expires, the buildings once again become the landowner's property.
When working with an NNN lease, a premier tenant like Burger King will usually pay a lower base rental rate since they’re responsible for all of the property’s operating costs. But NNN leases are attractive because they reduce the burden of property management by passing most of the responsibilities to the tenant.
How to Evaluate a Burger King Net Lease
Regardless of the tenant, it’s crucial to look at both property value and tenant strength when you’re considering an NNN lease or a ground lease. This is especially important when you’re looking at single-tenant properties like the ones Burger King prefers. With single-tenant properties, your tenant concentration will be 100% or 0% – you’ll be generating maximum cash flow or none at all.
For that reason, it’s important to ensure that your investment property meets the qualifications that Burger King prefers in its locations, including proximity to major shopping centers, high visibility, and easy access with room for a drive-thru. Meeting those criteria will help ensure that the property stays occupied and you continue to generate revenue.
What Makes Burger King an Attractive NNN Tenant?
While Burger King’s credit rating , according to Standard & Poor’s, is only a B+u, the company has many promising years ahead. Burger King’s modernization plan, called “Reclaim the Flame,” has been a success, driving strong results with over 20% growth in system-wide sales for the third quarter of 2022.
Net sales grew 7% yearly, topping $6.6 billion for the third quarter of fiscal 2022. Restaurant Brands International released its third-quarter financial report in September of this year, and Burger King’s data is looking good. The restaurant appears to be on an uptrend despite supply chain challenges related to the war in Ukraine.
It’s become abundantly clear that Burger King is looking forward to profitable times ahead. For that reason, now is a great time to get in on an NNN lease for a Burger King property and begin generating passive income as soon as possible.
