Walmart NNN For Sale
Walmart is a global giant in the world of retail. It’s consistently topped the Fortune 500 list of the top international companies by revenue. The company’s statistics are, frankly, astounding. It’s America’s largest majority private employer, providing jobs for 1.6 million people in the U.S. alone. Additionally, Walmart serves over 265 million customers each week.
The company was founded in 1962 by Sam Belton. It was incorporated soon after, in 1969, and went public on the New York Stock Exchange in 1972. From those humble beginnings grew the retail giant we know today, which operates about 10,500 stores in 24 countries around the world.
Walmart is a unique NNN lease tenant due to its acreage, square footage, and transaction size – meaning that it appeals to a much more select group of investors. The corporate guarantee on its leases and its strong credit rating make it even more attractive.
Tenant Overview
Based in Bentonville, Arkansas, Walmart provides a huge range of products, which contributes to its loyal customer base and strong brand recognition. It appeals to value-driven customers looking for necessities (including groceries) at a discount, which makes it an attractive company even during periods of economic downturn.
The company has three different store models, which contributes to the high level of variance in average square footage and lot size of the locations. The Walmart Supercenter model averages 182,000 square feet, while the Walmart Neighborhood Market model averages just 38,000 square feet, occupying a much smaller footprint. In the middle, there’s the Walmart Discount Store model, which clocks in at 106,000 square feet.
Walmart typically prefers to be located in zip codes with high populations, below-average income, and moderate economic activity. Of Walmart’s U.S. stores, 15% are in zip codes classified as rural. Walmart prioritizes locations along commercial corridors around other retail shops, but it often serves as a draw to a given area in its own right.
| Walmart NNN Lease at a Glance | |
| Average sale price | $13,000,000 |
| Average NOI (net operating income) | $754,000 monthly |
| Average square feet | 38,000 - 182,000 |
| Average lot size | Upwards of 6 acres |
| Typical lease term | 20 years |
| Escalators | 5% - 10% at renewal options |
| Typical location | Suburban areas with below-average income along retail corridors |
| Ticker symbol | NYSE: WMT |
Walmart Lease Structure
Walmart stores typically sign 20-year triple net leases (or NNN leases), during which the rent prices tend to remain flat over the initial term. Once the initial term expires, the rent is subject to a bump upon each subsequent five-year renewal option.
The average cap rate, or capitalization rate, for a Walmart net lease is 5.8%. The cap rate looks at a real estate investment with regards to its profitability and return potential. Typically, cap rates that land between 5% and 10% are considered good. Lower rates within that range, like Walmart’s, indicate that the investment is lower risk.
Why Choose a Net Lease Over a Gross Lease When Investing in Commercial Real Estate?
Gross leases and net leases are considered opposites in the world of commercial real estate. There are many reasons why investors tend to prefer net leases, but generally they center around the release of responsibility that comes with net leases.
When using a gross lease, the document will state a predetermined amount that a tenant will pay to use a space. That amount won’t change due to operating expenses, which are usually the responsibility of the landlord. Net leases, on the other hand, allow the landlord to pass operating expenses onto the tenant.
There are three levels of net leases: single, double, and triple. These categories are also known as N, NN, and NNN leases. With each level, the landlord can pass additional expenses onto the tenant, freeing the property owner of more and more responsibility.
Single net leases, also known as N leases, hold the tenant responsible for property taxes as well as the cost of rent. The landlord holds responsibility for the property’s insurance, maintenance, repairs, and utilities. N leases are infrequent in commercial real estate. Double net leases, or NN leases, and triple net leases, or NNN leases, are much more common.
What Types of Net Leases Does Walmart Operate Under?
Walmart stores generally use NNN leases with 20-year initial terms. These NNN leases are the most attractive type of lease for commercial real estate investors. That’s because they involve Walmart paying for all of the property’s operating expenses, including insurance premiums, property taxes, and any structural maintenance and repair costs that arise.
NN leases, or double net leases, are usually less attractive to investors. That’s because tenants are liable for only rent, insurance, and property taxes. In other words, the property owner is responsible for what’s left, including structural maintenance and repairs, which can end up being costly.
When renting a property through an NNN lease, a premier tenant like Walmart will generally pay a lower base rent. That’s because they’re responsible for all of the many operating costs. Still, NNN leases reduce the burden of property management because they pass so many responsibilities onto the tenant.
How to Evaluate a Walmart Net Lease
When you’re considering a Walmart NNN lease, it’s important to look at both property value and tenant strength. Especially when you’re reviewing large, single-tenant properties like the ones Walmart favors, your tenant concentration can be only either 100% or 0%. In other words, that you’ll be generating 100% of your potential cash flow or none of it.
In order to ensure that your Walmart NNN lease works out in the long term, you’ll want to ensure that the property you’re investing in meets the criteria that Walmart prefers in its locations – lots along highly trafficked retail corridors with parking lots and easy access. That will help ensure that your property stays occupied and that you keep generating revenue.
This is especially important because of the unique nature of these properties. Because of their extremely large size and warehouse structure, Walmart locations can be particularly hard to fill should the pharmacy move out. With that in mind, you want to make sure you’ve selected a high-traffic location where the store will thrive.
On the plus side, Walmart is a premier NNN lease tenant with healthy cash flow and a strong balance sheet, so you can count on your payments arriving on time each month and you won’t be chasing down tenants to get your hands on the next check.
What Makes Walmart an Attractive NNN Tenant?
Walmart recently wrapped up the third quarter of its fiscal 2023, and it released its financial findings in November. Its total revenue was $152.8 billion, up 8.7% year over year. It also continued to gain market share in the grocery vertical. Due to this level of productivity in the third quarter, Walmart raised its projections for full-year fiscal 2023.
It’s abundantly clear that Walmart is looking toward promising times ahead. For that reason, now is a great time to get in on an NNN lease for a Walmart property and begin generating passive income as soon as possible.
