Chick-fil-A NNN For Sale
Chick-fil-A is the largest quick-service chicken restaurant in America by annual sales. It’s supported by strong branding, critically acclaimed restaurant design, and a reputation for kind employees who say “my pleasure” rather than “you're welcome,” adding to its upscale fast food brand aesthetic.
Unlike many of its competitors, Chick-fil-A is a privately held company. The company is known for its strong franchisees – Chick-fil-A sees an annual franchisee turnover rate of less than 5% and accepts only about 0.4% of would-be franchisee applicants each year.
From the real estate perspective, Chick-fil-A’s net leases have been lauded for their corporate guarantee. As of December 2022, there are over 2,800 Chick-fil-A locations in the U.S., 16% of which are in Texas. Its customer loyalty and strong brand recognition make Chick-fil-A a great option for net lease investing.
Tenant Overview
Although Chick-fil-A is headquartered in Georgia, it has locations in 47 states plus Washington D.C., Puerto Rico, and Canada. The company is choosy about its store locations, and they’re often picked with a focus on expanding into target markets.
With that in mind, it’s no surprise that new Chick-fil-A stores often appear in high-traffic corridors and as outparcel or pad sites at major shopping centers. It generally places its stores in urban or suburban locations, but high car traffic and room for a drive-thru line is a must. Chick-fil-A also prioritizes large parking lots and visibility.
When you’re considering investing in a Chick-fil-A NNN lease, you may want to consider some of the factors outlined in the table below.
| Chick-fil-A NNN Lease at a Glance | |
| Average sale price | $3,300,000 |
| Average NOI (net operating income) | $141,900 monthly |
| Average square feet | 4,500 |
| Average lot size | 1.0 - 2.0 acres |
| Typical lease term | 20 years |
| Escalators | 10% every 5 years and in options |
| Typical location | Urban and suburban locations near shopping centers with high traffic |
| Ticker symbol | N/A (privately held) |
Chick-fil-A Lease Structure
Chick-fil-A typically signs 20-year ground leases, during which the rent prices are set to rise 10% every five years. Ground leases are similar to NNN leases in that landlords are generally not responsible for maintenance or other property costs.
Plus, Chick-fil-A’s ground-leased properties provide additional investment security. That’s because the company’s real estate team also makes a significant investment in the property by paying for the design, construction, and equipment for new stores.
The average cap rate, or capitalization rate, for a Chick-fil-A lease is 4.3%. Cap rates analyze a real estate investment’s profitability and return potential. Generally, cap rates of 5% to 10% are considered good, but Chick-fil-A’s slightly lower rate of 3.9% just means that it’s less of a risky investment. To put it another way, Chick-fil-A is 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, but you’ll find that there are many benefits to choosing to use a net lease. A net lease is usually considered the opposite of a gross lease. Let’s break it down.
A gross lease indicates that 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. On the flip side, a net lease allows the landlord to pass operating expenses on to their tenants.
There are three tiers of net leases: single, double, and triple. The listed categories are also referred to as N, NN, and NNN leases. Each level passes additional expenses over to the tenant, exposing the property owner to less and less risk as the net lease levels increase.
Single net leases, or N leases, pass just property taxes onto the tenant in addition to the cost of rent. The landlord retains responsibility for 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 Chick-fil-A Operate Under?
Like most of the best NNN investments, Chick-fil-A typically uses ground leases with 20-year initial terms during which the rent bumps up every five years. Ground leases are similar to NNN leases, because the tenant is responsible for property taxes, insurance, and maintenance expenses.
The difference is that ground leases tend to involve undeveloped commercial land that is leased to tenants. Those tenants then have the right to develop on the property, meaning that they own the buildings there. They still have to pay rent for the land, however, and if the lease expires, the buildings become the property of the landowner.
When working with an NNN lease, a tenant like Chick-fil-A will generally pay a lower base rent, because they’re responsible for all of the property’s operating costs. NNN leases reduce the burden of property management by passing most of the responsibilities to the tenant.
How to Evaluate a Chick-fil-A Net Lease
When you’re considering an NNN lease or a ground lease, it’s crucial to look at both property value and tenant strength. In particular, when you’re looking at single-tenant properties like the ones Chick-fil-A prefers, your tenant concentration will be either 100% or 0% – that is to say that 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 Chick-fil-A prefers in its locations, including proximity to major shopping centers, high visibility, and easy ingress and egress for drive thru. That will help ensure that the property stays occupied and that you continue to generate revenue.
What Makes Chick-fil-A an Attractive NNN Tenant?
Chick-fil-A has what some might even call a cult following of chicken sandwich enthusiasts. By combining its strong brand recognition and exceedingly loyal customer base with strong fundamentals and stable financial reports, it’s an attractive option for an NNN lease tenant.
Because it’s a privately held company, Chick-fil-A doesn’t have to report its earnings, losses, or other statistics typically shared in quarterly fiscal memorandums. But it does share some of its profit information in its franchise disclosure documentation.
Through that report, Chick-fil-A reported that in 2021, company revenues grew by 33% year over year and profits grew by 67.3% year over year. Revenue in 2021 reached $5.8 billion.
It’s clear that Chick-fil-A is looking forward to promising times ahead. For that reason, now is a great time to get in on an NNN lease for a Chick-fil-A property and begin generating passive income as soon as possible, if you’re able to secure NNN financing.
