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O’Reilly Auto Parts NNN For Sale

The American auto parts retailer O’Reilly Auto Parts is a hallmark of the do-it-yourself auto industry. Founded in 1957 by the O’Reilly family, the stores sell aftermarket automotive parts, tools, supplies, accessories, and equipment. Their customers include both professional service providers and individual car owners looking for a DIY solution.

The company operates over 5,600 stores in 47 U.S. states as well as Mexico. Since its inception nearly 70 years ago, O’Reilly Auto Parts has acquired numerous other auto parts companies, continuing to expand its footprint both domestically and in international markets.

Tenant Overview

Although many brick-and-mortar business models have been negatively impacted by the popularity of Amazon and other eCommerce sites, the automotive parts industry has remained strong. By providing in-person guidance and quick turnarounds on purchases, O’Reilly Auto Parts has continued to thrive, remaining a strong triple-net lease tenant.

Plus, O’Reilly’s combination of do-it-yourself (DIY) customers and do-it-for-me (DIFM) professional service providers gives the company dual market power that serves as an edge over its competitors.

With attractive locations in both urban and suburban environments, O’Reilly Auto Parts offers commercial real estate investors an attractive triple-net lease tenant at a reasonable price point.

O’Reilly Auto Parts NNN Lease at a Glance
Average sale price $2,380,000
Average NOI (net operating income) $118,000 monthly
Average square feet 7,000 - 7,500
Average lot size 0.5 - 1.5 acres
Typical lease term 20 years
Escalators 5% - 10% every 5 years
Typical location Urban and suburban locations along highly trafficked retail corridors
Ticker symbol NASDAQ: ORLY

O’Reilly Auto Parts Lease Structure

O’Reilly’s long-term leases, which range from 15 to 20 years, make the company an attractive triple-net lease tenant. With rent escalators between 5% and 10% every five years, property owners can count on covering inflation. Most O’Reilly Auto Parts locations use NNN leases, which relieve the landlord of the most responsibility. Some do still use NN leases, however, which renders the property owner responsible for roofing and structural maintenance.

The average cap rate, or capitalization rate, for an O’Reilly Auto Parts net lease is 4.9%. This figure is used to evaluate real estate investments in terms of their profitability and return potential. Generally speaking, cap rates that land around 5% are considered good. Lower rates within that range, like that of O’Reilly Auto Parts, typically indicate a low-risk investment.

Why Choose a Net Lease Over a Gross Lease When Investing in Commercial Real Estate?

Commercial real estate investors can see many benefits when they elect to work with a net lease instead of a gross lease. In the industry, these two types of leases are considered opposites, and each option provides a very different structure.

Gross leases will state a fixed amount that a tenant must pay to use a space. That number won’t change based on operating expenses or any other costs, as the landlord will be responsible for those. Net leases diverge from gross leases by handing operating expenses over to the tenants, making for a more passive investment. In turn, the tenant will usually pay a lower base rent – but income will be more consistent for the property owner.

As you are looking at commercial real estate investments, you’ll see that there are three tiers of net leases: single, double, and triple. They’re also known as N, NN, and NNN leases. Each level allows the landlord to pass additional expenses onto the tenant, absolving themselves of more and more risk as the tiers increase.

Single-net leases make the tenant responsible for property taxes in addition to the cost of rent, but the landlord will still have to pay for insurance, maintenance, repairs, and utilities. Single-net leases are less common when it comes to commercial real estate. Double-net leases and triple-net leases are used much more often.

What Types of Net Leases Does O’Reilly Auto Parts Operate Under?

For its more recent leases, O’Reilly Auto Parts tends to use triple-net leases. Some older stores are still operating under double-net (NN) leases, however, meaning that landlords are responsible for roofing, structural repairs, and in some cases, landscaping. Both types of leases offer rent escalations every five years.

With regard to lease terms, O’Reilly Auto Parts offers attractive, long-term lease agreements that range from 15 to 20 years. The company opts for 20-year leases most of the time, provided that the property in question meets its preferred qualifications and criteria.

O’Reilly’s 20-year triple-net leases are generally the most attractive option for property owners and investors. That’s because triple-net leases make tenants responsible for operating expenses and any costs related to the property, which can include insurance premiums, property taxes, and structural maintenance or repair costs.

With double-net leases, tenants are responsible for only rent, insurance, and property taxes – meaning that the property owner has to take care of costs related to structural maintenance and repairs. Those types of repairs can be pricey and urgent when the need arises, especially big-ticket improvements like roofing. For that reason, triple-net leases are normally preferable.

For O’Reilly’s desirable triple-net leases, the company will normally pay a lower base rent since they’re responsible for all of the operating costs. But for many property owners, that’s a tradeoff worth making. Why? Triple-net leases reduce the responsibilities of property management, allowing for passive and consistent income.

How to Evaluate an O’Reilly Auto Parts Net Lease Property For Sale

No matter what tenant you are considering, you’ll want to look at both property value and tenant strength for a triple-net lease. This is especially crucial when you’re evaluating single-tenant properties, like the ones many O’Reilly Auto Parts stores inhabit.

With this type of property, you will have a tenant concentration of only 100% or 0%, meaning you’ll be generating all of your potential cash flow or none of it.

You’ll want to do your best to ensure that your O’Reilly Auto Parts triple-net lease pans out, and the best way to do that is by making sure that the property meets the criteria O’Reilly looks for in its locations: urban and suburban lots along highly trafficked retail corridors with plenty of room for parking. Meeting these qualifications will help your property stay occupied and help you continue generating revenue.

That said, it’s not impossible to fill an auto parts store footprint like the ones that O’Reilly uses. In the past, properties that had previously housed auto parts retailers have gone on to host dollar or discount stores, as well as medical companies, such as DaVita Kidney Care.

Luckily, triple-net tenants like O’Reilly Auto Parts are generally large, investment-grade companies with strong balance sheets. While you will need to ensure that you’re offering a high-quality property to keep your tenant happy, you won’t need to worry about chasing down subpar tenants to get your hands on rent each month. Triple-net lease tenants are reliable.

What Makes O’Reilly Auto Parts an Attractive NNN Tenant?

O’Reilly Auto Parts is a recognizable brand with a loyal customer base. Since its humble beginnings in Springfield, Missouri in 1957, the company has continued to grow, investing in numerous mergers and acquisitions along the way.

Since 1998, O’Reilly has been buying up smaller auto parts stores, including Texas’ Hi/LO Auto Supply, Midwest Automotive Distributors, Frank’s Auto Supermarket, Bond Auto Parts, Bennett Auto Supply, and more.

In 2020, O’Reilly acquired Mexico’s Masaya Auto Parts. This acquisition marked its first move into international markets, and stands out as a positive sign as to the company’s future. But these purchases aren’t the only signal of a strong financial outlook for O’Reilly.

In June 2022, at the company’s yearly shareholder meeting, O’Reilly reported 12-month sales at $13.7 billion and an estimated market cap of $45 billion. In other words, the business is performing well and has room to grow. Comparable store sales increased 4.5%, and earnings per share saw a three-year compound annual growth rate (CAGR) of 23%.

Plus, O’Reilly has been repurchasing shares of its own stock, a sure sign of perceived value. In the past twelve months, the company has repurchased $2.2 billion worth of shares. All in all, it looks like O’Reilly Auto Parts is here to stay – and with long-term, triple-net leases, the company is an excellent tenant for any commercial real estate investor.