THE NET LEASE

QSR MARKET REPORT

Q2 2015
MARKET OVERVIEW

QSR (CORPORATE) PROPERTIES

MEDIAN ASKING CAP RATES

Tenant

Q2 2014
Q2 2015 Basis Point
(Previous) (Current)
Change

All Corporate QSR

5.75%

5.65%

McDonald's (Ground Lease)*

4.00%

3.95%

-10
-5

Panera Bread

5.25%

5.08%

-17

Starbucks

5.50%

5.07%

-43

* Ground leased properties were not included in the All Corporate QSR
..category.

QSR (FRANCHISEE) PROPERTIES

MEDIAN ASKING CAP RATES

Tenant

Q2 2014
(Previous)

Q2 2015
(Current)

Basis Point
Change

All Franchisee QSR

6.25%

5.90%

-35

Burger King

6.50%

5.95%

-55

KFC

6.00%

5.55%

-45

Pizza Hut

6.25%

6.25%

Taco Bell

5.75%

5.40%

-35

Wendy's

5.75%

5.65%

-10

QSR PROPERTIES MEDIAN

ASKING PRICE

Tenant

Median
Price

All QSR

$2,034,500

Burger King

$1,836,565

KFC

$1,333,946

McDonald's (Ground Lease)

$2,529,000

Panera Bread

$3,374,723

Pizza Hut

$747,862

Starbucks

$1,930,636

Taco Bell

$2,444,596

Wendy's

$2,411,362

Cap rates in the net lease quick service restaurant (QSR) sector
reached 5.90% in the second quarter of 2015 for properties leased to
franchisees. This represented a 35 basis point decline from the prior
year. Corporate leased QSR properties experienced a 10 basis point
decline to 5.65% during the same time period. The QSR sector differs
from other net lease retail sectors as the majority of the properties are
leased to franchisees rather than corporate entities. However, the cap
rate spread between corporate guaranteed and franchisee guaranteed
QSR properties compressed from 50 to 30 basis points in the second
quarter of 2015. Investors have been increasingly willing to lower credit
standards for increased yield in the QSR sector, especially in major
markets or for properties with favorable lease structures (i.e. larger or
more frequent rental escalations). McDonalds ground leases continually
represent the lowest cap rates for all QSR properties (3.95%) due to
their superior credit rating (S&P: A), long term leases, low price points,
reoccurring rental escalations and strong brand recognition. Cap
rates for QSR properties leased to franchisees are influenced by the
guarantor who can range from a one unit operator to a franchisee with
hundreds of restaurants. Franchisee backed QSR locations with major
brands provide investors a security level, despite the lack of a corporate
guarantee.
A surplus of 1031 exchange investors with low equity requirements
are attracted to the QSR sector as these properties have a median
asking price of $2 million. Additionally, QSR properties typically feature
recognizable tenants with long lease terms, no landlord responsibilities
and rental escalations. The median remaining lease term in the second
quarter of 2015 in the QSR sector was 16 years. As a result, the premium
for net lease QSR assets was 60 basis points over the entire retail net
lease market. This represented a 10 basis point increase from the prior
year.
Sale leaseback transactions by QSR operators have been able to
increase supply and more specifically the supply of long term leased
properties. In the current record high pricing environment, franchisees
are able to unlock the value of their owned real estate and are able to
use the capital for expansion, remodeling of existing locations or the
paydown of existing debt.
The single tenant net lease QSR sector will remain active as the lower
price points, rental escalations and typical NNN lease structures of this
asset type continue to attract private and 1031 exchange investors. With
cap rate levels at historic lows for net lease retail, investors have altered
their investment criteria to include franchisee credit in their search for
increased yield.

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THE NET LEASE

QSR MARKET REPORT
Q2 2015
SELECTED COMPANY COMPARISON
Tenant
Arby's
Burger King
Carl's Jr.
Chick Fil A
Chipotle
Dunkin' Donuts
Hardee's
Jack in the Box
KFC
McDonald's
Panda Express
Panera Bread
Pizza Hut
Popeyes
Sonic Drive-In
Starbucks
Taco Bell
Wendy's
Whataburger

Total Number of Locations

Ticker Symbol

Market Cap

3,400
13,000+
1,385
1,850
1,700+
11,000+
1,944
2,200
18,875
35,000+
1,746
1,800
15,605
2,000+
3,517
21,536
6,500
6,515
750+

Private
QSR
Private
Private
CMG
DNKN
Private
JACK
YUM
MCD
Private
PNRA
YUM
PKLI
SONC
SBUX
YUM
WEN
Private

Private
$18 B
Private
Private
$20 B
$5 B
Private
$3 B
$39 B
$94 B
Private
$4 B
$39 B
$1.4 B
$1.5 B
$83 B
$39 B
$3 B
Private

Leases can be guaranteed by franchisees or corporations.

QSR MEDIAN ASKING CAP RATE BY REGION
5.90%

5.60%

ST
A
HE
T
R
NO

WEST
MOUNTAIN
4.80%

MIDWEST

SOUTH
5.50%
5.55%

www.bouldergroup.com

THE NET LEASE

QSR MARKET REPORT
Q2 2015
QSR VS RETAIL NET LEASE MARKET
CAP RATES

ASKING CAP RATE BY

LEASE TERM REMAINING

Q2 2014
(Previous)

Q2 2015
(Current)

QSR Sector

6.00%

5.80%

Retail Net Lease Market

6.50%

6.40%

50

60

Sector

QSR Premium (bps)

MEDIAN NATIONAL CLOSED CAP RATE

SPREAD

Lease Term Remaining

Cap Rate

20+

5.64%

15-19

5.75%

10-14

5.96%

Under 10

6.30%

QSR ASKING CAP RATE BY

GUARANTOR

Sector

Closed

Asking

Spread
(bps)

Corporate
Cap Rate

Franchise
Cap Rate

Spread
(bps)

QSR Sector

5.84%

5.66%

18

5.65%

5.90%

30

FOR MORE INFORMATION

AUTHOR
John Feeney | Vice President
john@bouldergroup.com

CONTRIBUTORS
Randy Blankstein | President

Jimmy Goodman | Partner

Zach Wright | Research Analyst

randy@bouldergroup.com

jimmy@bouldergroup.com

zach@bouldergroup.com

2015. The Boulder Group. Information herein has been obtained from databases owned and maintained by The Boulder Group as well as third party sources. We have not verified the information
and we make no guarantee, warranty or representation about it. This information is provided for general illustrative purposes and not for any specific recommendation or purpose nor under any
circumstances shall any of the above information be deemed legal advice or counsel. Reliance on this information is at the risk of the reader and The Boulder Group expressly disclaims any liability
arising from the use of such information. This information is designed exclusively for use by The Boulder Group clients and cannot be reproduced, retransmitted or distributed without the express
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