NET LEASE REPORT | JULY 2019

The Quick Service Restaurant (QSR) sector is comprised of

a variety of fast food concepts ranging from the well-known

brands like Chick-fil-A and McDonald’s, to smaller chains such

as Raising Cane’s and Steak N’ Shake. This report takes a look

at the sector in-depth, providing an analysis of the past twelve

months of data.

The QSR offers investors an attractive price point, with the

average sale price for the past 12 months at about $2.1M and

an average cap rate of 5.74%. Cap rates for the QSR sector

have stayed very similar the past few quarters, signaling some

stability.

The buildout between fast food properties and fast casual can

be similar allowing tenants to be easily replaced should their

leases expire or they vacate prematurely. It does seem that

outparcels could accommodate more variety as it seems fast

food retailers will most likely be in an outparcel location instead

of an in-line one in more suburban/rural locations. QSRs tend

to follow traditional real estate principals of location, location,

location which also adds to their attractiveness.

QSR SECTORNET LEASE REPORT JULY 2019

STNL Cap Rates vs. 10 Year Treasury Rates

7.18%6.99% 6.47% 6.45% 6.32% 6.31%

6.52%6.32%

5.76% 5.64% 5.53% 5.45%6.08%

5.48%5.60%

5.74%

1.87%

2.73%1.96% 1.78% 2.40%

2.74%2.41%

2.01%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

Q42012

Q12013

Q22013

Q32013

Q42013

Q12014

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Q42016

Q12017

Q22017

Q32017

Q42017

Q12018

Q22018

Q32018

Q42018

Q12019

Q22019

National STNL Cap Rates National QSR Cap Rates 10 Year Treasury Rates

7.18%6.99% 6.47% 6.45% 6.32% 6.31%

6.52%6.32%

5.76% 5.64% 5.53% 5.45%6.08%

5.48%5.60%

5.74%

1.87%

2.73%1.96% 1.78% 2.40%

2.74%2.41%

2.01%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

Q42012

Q12013

Q22013

Q32013

Q42013

Q12014

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Q42016

Q12017

Q22017

Q32017

Q42017

Q12018

Q22018

Q32018

Q42018

Q12019

Q22019

National STNL Cap Rates National QSR Cap Rates 10 Year Treasury Rates

5.90%

4.51% 4.30%

6.11%5.68%

4.37% 4.32%

6.11%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

Burger King McDonalds Chick-Fil-A Bojangles

Cap Rate Cap Rate 10+ Years

NET LEASE REPORT | JULY 2019

Average Cap Rates by Tenant (Past 12 Months)

Average Cap Rates by Term Remaining (Past 12 Months)

Cap Rates by TenantFour of the largest tenants in the sector: Burger

King, McDonald’s, Chick-fil-A and Bojangles,

offer long-term investment-grade leases with

either corporate or franchisee guarantees. Cap

rates from quarter to quarter don’t offer too

much change, especially with Bojangles having

no change and staying at a 6.11% cap, which was

the highest for this quarter, and Chick-fil-A was

averaging the lowest rate at 4.30%.

Cap Rates by Term RemainingLooking back, we can see that the number of

years remaining on a lease has a direct impact on

the cap rate depending on the tenant, except for

Bojangles whose cap rate was 6.11% no matter

the remaining term. Chick-fil-A actually increased

with longer terms with a 4.32% compared to

4.30%. This is most likely a result of a higher

premium and value on Chick-fil-A compared to

other tenants.

Cap Rates by Lease TypeWhich type of lease a tenant is signed to can

also make a vast difference in the cap rate of a

property. Depending on how much an owner is

responsible for the structure and maintenance

can have a major effect on price. This is why

we can see higher cap rates coming from NNN

leases at 5.80% overall and 5.65% with 10+ years

remaining versus NN leases that were averaging

5.69% and 5.57% respectively. Ground leases

totally absolve the owner of maintenance or

upkeep which is more of a premium, causing

those rates to be lower.

5.90%

4.51% 4.30%

6.11%5.74%

6.32%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

Burger King McDonalds Chick-Fil-A Bojangles QSR STNL Average

5.80% 5.69%4.89%

5.65% 5.57%4.76%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

NNN NN GL

Cap Rate Cap Rate 10+ Years

Cap Rates by Lease Type

NET LEASE REPORT | JULY 2019

Type: Fee Simple

Guarantee: Corporate/Franchisee

Lease Term: 20 Years

Escalations: Varies

Cap: 6.08%

Type: Fee Simple

Guarantee: Franchisee

Lease Term: 20 Years

Escalations: 5%/5yrs

Cap: 5.46%

Type: Fee Simple

Guarantee: Franchisee

Lease Term: 20 Years

Escalations: Varies

Cap: 5.90%

Type: Ground Lease

Guarantee: Corporate

Lease Term: 20 Years

Escalations: 10%/5yrs

Cap: 4.51%

Type: Ground Lease

Guarantee: Corporate

Lease Term: 15 Years

Escalations: 10%/5yrs

Cap: 4.30%

Type: Fee Simple

Guarantee: Franchisee

Lease Term: Varies

Escalations: Varies

Cap: 6.35%

Type: Fee Simple

Guarantee: Corporate

Lease Term: Varies

Escalations: 1.5%/Annual

Cap: 6.86%

Type: Fee Simple

Guarantee: Corporate

Lease Term: 10 Years

Escalations: 10%/5yrs

Cap: 5.15%

Type: Fee Simple/Ground Lease

Guarantee: Franchisee

Lease Term: Varies

Escalations: 10%/5yrs

Cap: 5.66%

Type:Fee Simple/Ground Lease

Guarantee: Franchisee

Lease Term: 20 Years

Escalations: Varies

Cap: 5.47%

Type: Fee Simple/Ground Lease

Guarantee: Varies

Lease Term: 20 Years

Escalations: Varies

Cap: 6.23%

Type: Fee Simple

Guarantee: Franchisee

Lease Term: 20 Years

Escalations: 10%/5yrs

Cap: 5.70%

Typical Lease Structures

NET LEASE REPORT | FEB 2019

CALKAIN | RESEARCH12930 Worldgate Drive, Suite 150 | Herndon, VA 20170 | 703.787.4714

DISCLOSURES: As part of our market research, we collect sales price, cap rate, and lease years remaining for all publicly advertised and sold STNL properties. a) We are not able to capture 100% of the off-market transactions that occur; however the nature of off-market typically limits their value as true market comps. b) Sources include public records, sales announcements, Calkain sales, and appraiser obtained sales amongst others. c) Our collection process, while thorough, is not all encompassing and there may be biases in the data as it relates to geography, tenancy, or brokers involved in the transaction. d) Public records often lag behind when transactions actually close, months in some cases. Consequently the data supplied here for any given quarter is likely to miss a material amount of transactions that actually closed in it.

Cap Rates by RegionThe region in which the QSR property is

located can have a drastic impact on its traded

cap rate. Looking at our data, properties in

the South and South East (6.18% and 6.12%

respectively) were significantly higher than

their counterparts in the West and other

regions. California’s premium market traded at

the lowest cap with a 4.59% average.

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MID-ATANTIC5.66%

NORTHEAST5.95%

FLORIDA5.48%

SOUTHEAST6.12%

MIDWEST5.95%

WEST5.43%

SOUTHWEST5.68%

CALIFORNIA4.59%

SOUTH6.18%

Cap Rates by Region (Past 12 Months)