Burger King TENANT OVERVIEW


Pros

  • Brand recognition & preferred locations
  • NNN lease eliminates landlord responsibilities

Cons

  • Non-investment grade credit
  • Franchisee operators

Earnings Highlights

Earnings Summary
  • BK comparable sales were 2.2% for Q1 2019
  • System-wide sales growth was 8.2%
  • Burger King saw 5.7% net restaurant growth

Tenant Description

Burger King is the second largest fast food hamburger chain in the world, trailing only McDonald's. For a non-investment grade net lease tenant, Burger King is a solid net lease investment, providing stability in an uncertain market.

Similar to other quick-service restaurant (QSR) operators, Burger King prefers locations in high traffic areas with superior access. Accordingly, net lease Burger King locations are usually supported by strong real estate fundamentals. The underlying asset is typically a 3,000 - 4,000 square foot building with a drive-thru window, situated on 0.5 - 1.5 acre of land. It is important to note that Burger King franchises the majority of their locations. Therefore, there are a number of various lease agreements and guarantors operating under the Burger King banner. Corporate-backed leases have been trending towards 10-15 year ground leases, with rent increases of 8% - 10% every five (5) years. Franchise guaranteed lease terms vary, as do their respective cap rates, based on the perceived credit-worthiness of the operator. However, if a site has high quality real estate and strong sales, some leases have been known to offer annual rent increases or percentage rent.

Burger King has been in business for over 60 years and owns or franchises more than 14,000 Burger King restaurants in approximately 100 countries and US territories worldwide, almost all of which are franchised.

Burger King generates revenues from three sources: retail sales at company restaurants; franchise revenues, and property income from restaurants that BKH leases or subleases to franchisees.

In 2014, Restaurant Brands International Inc formed to serve as the indirect parent of Tim Hortons and its consolidated subsidiaries, and Burger King Worldwide and its consolidated subsidiaries. Since 2010, the Burger King brand has increased annual net restaurant growth by approximately four times, from adding 173 new units in 2010, to 735 new restaurants in 2016. This growth has made Burger King one of the fastest growing QSRs in the world. Burger King has implemented a modernization plan, and will offer incentives to franchisees who remodel their stores in the new modern format.

Average Cap Rate
5.68%
12 mo avg with 10+ yr lease term
Average Property & Lease
Average Sale Price $2,028,799
NOI $115,857
$/Square Foot $505 - $675
Building SF 3,000 - 4,000
Lot Size 0.5 - 1.5 Acres
Lease Term 10 - 20 Years
Escalations 5 - 10% Every 5 Years
Stock Symbol QSR
Credit Rating
S&P BB-
Moody's N/A
Average Cap Rate Trend
5.95%
2018
5.72%
2019
Rates reflect last 12 mos, short and long-term
Recent Sales Comps
Florence, SC 5.70%
Lawrenceburg, KY 6.25%
Bisbee, AZ 5.75%