Shell NNN For Sale
Shell , officially named Royal Dutch Shell PLC, is a multinational oil and gas company that’s headquartered in the Netherlands and incorporated in England. In the United States, however, Shell typically refers to Shell Oil Company, a subsidiary of Royal Dutch Shell that is headquartered in Houston, Texas.
The company employs over 80,000 people in the U.S. and is one of America’s largest oil and natural gas producers as well as one of the country’s largest gasoline marketers. As an NNN lease tenant, Shell is a gas station and convenience store with strong brand recognition, a corporate guarantee, and a high-quality location selection process.
Tenant Overview
Shell offers triple-net lease properties with strong real estate fundamentals, and the company adheres to relatively strict site selection policies focused on commercial corridors. Currently, there are over 12,000 Shell locations in the U.S. The company prioritizes locations at corners with traffic lights along high-traffic throughways and outparcel pads of shopping centers.
Good visibility, parking spots, and accessible entry and exit are important characteristics of a successful Shell site. In terms of location, the company likes populous areas with consistent vehicle traffic. Shell stores are often located at high-volume intersections close to other commercial traffic generators or heavily-trafficked highways.
| Shell NNN Overview | |
| Average sale price | $2,000,000 |
| Average NOI (net operating income) | $180,000 monthly |
| Average square feet | 3,000 |
| Average lot size | 0.5 - 1.0 acres |
| Typical lease term | 20 years |
| Escalators | 10% every 5 years |
| Typical location | Urban and suburban areas along high-traffic throughways and highways |
| Ticker symbol | NYSE: SHEL |
Shell Lease Structure
Shell locations typically sign 20-year net leases, during which the rent prices will rise 10% every five years. Most Shell stores will sign NNN leases, which are generally considered preferable for investors as they alleviate maximum responsibility from the landlord, passing costs like insurance, maintenance, landscaping, and more onto the tenant.
The average cap rate, which stands for capitalization rate, for a Shell net lease is 5.75%. Cap rates are intended to assess real estate investments in terms of profitability and return potential. Those that land between 5% and 10% are generally considered good. Lower rates within that range, like that of Shell, indicate that the investment is lower-risk.
Why Choose a Net Lease Over a Gross Lease When Investing in Commercial Real Estate?
When investing in commercial real estate, there are two main lease options: net and gross. These two types of leases are essentially opposites, but for investors, there are many benefits to choosing a net lease over a gross lease.
So what does each option entail? Gross leases involve a preset value that a tenant pays to use a space. That number won’t change due to operating expenses, as landlords are generally liable for operating costs. Net leases, on the other hand, benefit landlords as they allow them to hand off operating expenses to tenants.
There are three levels of net leases available: single, double, and triple. You might know them as N, NN, and NNN leases. Each increasing tier allows the landlord to pass more and more expenses onto the tenant, minimizing their own risk as the levels increase from N to NNN.
N leases, or single net leases, mean that the tenant is responsible for rent and property taxes but the landlord remains responsible for items like insurance, utilities, repairs, or maintenance. N leases are less in the world of commercial real estate. NN leases, or double-net leases, and NNN leases, also called triple-net leases, are used more frequently.
What Types of Net Leases Does Shell Operate Under?
New Shell locations typically have NNN leases with 20-year initial terms. NNN leases are considered the most ideal option for commercial real estate investors due to their minimized landlord responsibility.
NNN leases hold the tenant accountable for paying for all of the property’s operating expenses, including insurance premiums, taxes, and structural maintenance or repair costs.
There are older Shell locations out there that still use NN leases, which are similar to NNN leases but hold the landlord responsible for roof and structural repairs. These older stores may also have shorter initial terms and higher cap rates.
NN leases are usually viewed as slightly less than optimal for investors since the tenant is liable for only rent, insurance, and property taxes. In other words, the property owner is responsible for all that’s left, including structural maintenance and repairs, which can add up.
When an NNN lease is used, a tenant like Shell will usually pay a lower base rent. But that’s because they’re responsible for so many other operating costs. Still, NNN leases are attractive for investment properties because they reduce the burden of property management by passing most responsibilities onto the tenant.
How to Evaluate a Shell Net Lease
As you look at NNN lease properties, you need to consider the property value as well as the tenant strength. This is especially important when reviewing single-tenant properties, like the ones involved in a Shell lease, as your tenant concentration can be only 100% or 0%. That is to say that you’ll generate 100% of your potential cash flow with the property or none of it.
In order to ensure that your Shell NNN lease pans out, it is essential to ensure that the property you’re investing in meets the qualifications that Shell looks for in its locations – high-visibility corner locations with ample parking and plenty of access via high-traffic throughways. That will help keep your property occupied and your wallet full.
On the plus side, NNN lease tenants like Shell are usually large companies with strong balance sheets. It might seem like a small consideration, but choosing high-quality tenants is an important piece of ensuring that your payments arrive on time each month and you won’t be chasing down your tenants when rent is due.
What Makes Shell an Attractive NNN Tenant?
Shell convenience stores and gas stations have strong brand recognition and a loyal customer base. By combining that reputation with stable financials, a strong credit rating (S&P Global Ratings gave it an A+), and ample growth opportunities, it’s an attractive option for an NNN lease tenant.
After a revenue downturn in 2020 of 47% that company leadership attributed to the COVID-19 pandemic, Shell has made a robust turnaround. In fiscal year 2022, which ended last December, the company reported year-over-year revenue growth of 41%, yielding an impressive revenue value of $386 billion.
That’s nearly equivalent to Shell’s highest-earning year on the books: 2018, in which the company generated $392 billion in revenue. But even though the most recent year’s revenue was ever-so-slightly lower, gross profit has never been higher. In fiscal 2022, Shell’s gross profit came in at $83 billion, 56% higher than it was in 2018.
These numbers point to Shell’s improving management strategy and focus on profit. Combined with robust earnings to date and a strong credit score, it’s clear that Shell is a high-quality, investment-grade tenant with a shining cap rate. In other words, Shell is an attractive option for any net lease investor.
Other NNN Lease Investment Tenants to Consider:
WalmartStarbucks
CVS
