Net Lease Tenant of the Quarter Q3 2022: Starbucks

Jul 14, 2022

In Q1 of 2020, Starbucks held Westwood’s Tenant of the Quarter honor for many of the same reasons other net lease properties get the nod. As of Q3, 2022, they are at it again! This time, the distinction goes to Starbucks Corporation for going above and beyond the usual net lease investment attributes, driving home record revenues, and providing new commercial real estate investment options.

In this ever-changing world of economic uncertainty, Starbucks’ announced its consolidated net revenues were up 15% to a Q2 record of $7.6 Billion.

Cold coffee drink with whipped cream and chocolate syrup swirls in top

What You Need to Know for CRE Investor Confidence: Starbucks Financials & Growth Outlook

Starbucks Corporation’s growth projection is on a positive trajectory. Steady stock market (NASDAQ: SBUX) performance, increasing market share, a Moody’s Baa1 rating and an S&P investment-grade BBB+ rating, and notable rising sales all combine for a solid financial outlook.

As of April 3, 2022, Q2 Fiscal Results, “North America and US comparable store sales increased 12%, driven by a 7% increase in average ticket and a 5% increase in comparable transactions.” Additionally, “Starbucks® Rewards loyalty program 90-day active members in the US increased to 26.7 million, up 17% year-over-year.” This last figure is significant since loyalty programs and digital sales have become measurable revenue drivers for most fast-food and QSR companies.

In the Q2 fiscal conference call, Howard Schultz, interim Chief Executive Officer, shared that to meet shifting customer demands better and add to its US store capacity, the company plans to:

  • Accelerate store growth plans, adding roughly 500 new US locations in 2022
  • Primarily add high-returning drive-thrus
  • Hasten renovation programs
  • Advance their digital footprint and AI capabilities

“The investments we are making in our people and the company will add the capacity we need in our US stores today and position us ahead of the coming growth curve ahead,” said Schultz. The investments Starbucks is making also benefit their property-investor partners through stable, reliable income-producing real estate.

Did you know Starbucks is the world’s largest coffeehouse chain? At the end of Q2, 2022, Starbucks reported 34,630 global locations.

Man's arm paying with his phone at a drive thru window

Starbucks Real Estate Benefits: Prime Net Lease Investment Opportunity

In addition to its handcrafted food and beverage offerings and coffeehouse experience, Starbucks’ strength comes from proof-of-concept throughout a historical pandemic. It is prepared for future growth and other crises with expanded outdoor seating, popular digital services, and an increased drive-thru presence. In fact, the company plans to outfit 90% of its new stores with tech-centric drive-thrus.

Starbucks can also attribute increasing success to prime locations on Class A real estate, strategically situated in urban and suburban locations near other business and retail essentials, and most often placed on the commuting side of traffic for easy access. For net lease investors, these prime locations can lead to a solid return on investment if/when you decide to sell and the ability to easily re-tenant should it be necessary.

Starbucks cafe, outside view, patio with tables and umbrellas

Benefits of Starbucks Net Lease Properties

Low Barrier to Entry

The average sale price of a Starbucks net lease property is $2–3M, which makes it attainable for new investors and a wise diversification option for savvy investors.

Tangible Asset on Valuable Real Estate

Starbucks coffeehouses typically sit on 0.5- to 1-acre plots with high traffic counts, presenting the opportunity for resale ROI and/or easy re-tenanting.

Monthly Income Guarantee & Less Risk

Stores operate with corporate-guaranteed, low-maintenance leases for income stability, predictability, lifestyle freedom, and less risk.

Additionally, Starbucks is an essential retailer with a proven pandemic history, so there’s very little concern about future monthly income.

Long-term Predictable Income

New stores typically operate with 10-year double-net (NN) leases, so your income won’t fluctuate with market ups and downs.

Starbucks’ leases also offer renewal options so you can continue to own your Starbucks QSR well past the original lease terms for income dependability

Inflation Protection

Most Starbucks leases offer terms that include a 5 –10% rent increase every 5 years. This combats inflation and provides more stable cash flow, as well as the opportunity for a higher internal rate of return.

Smart Trade with a 1031 Exchange

You can utilize the 1031 exchange to trade up to a Starbucks NNN lease property from a high-maintenance or under-performing property.

As of Q2, 2022, Starbuck has 16,926 North American locations with plans to add roughly 500 new US stores throughout the year.

Starbucks restaurant building with cafe lights, landscaping, and a big blue sky

To Wrap it Up – NNN Tenant of the Quarter: Starbucks

Once again, Starbucks is Westwood’s Net Lease Tenant of the Quarter. With record-setting quarterly net revenues and same-store US sales and the addition of nearly 500 QSRs this year, it’s easy to see how this tenant got our vote.

Starbucks Corporation values its real estate partnerships with net lease investors like you, offering prime properties at a moderately low price-point with low maintenance and long-term, stable monthly income that preserves capital and builds wealth.

Westwood Logo in blue/goldReady to Learn More? Contact us for a No-Obligation Conversation

If you’re interested in buying a Starbucks QSR net lease property, be sure to connect with a Westwood Net Lease Advisor who will get to know you and your goals, review the national market, connect with colleagues, and find off-market, pre-market, and developing properties that meet your lifestyle and financial goals.

We are also 1031 specialists who can help you obtain your new property and close the deal in the tight 1031 timeline. Our team is here to represent you and guide you in every step of the process – from the property search to closing – all at no charge to you. Contact us today for your no-obligation, free conversation, 314-997-5227.


 

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