Starbucks as a Net-Lease Investment
Since 1971, Starbucks Coffee Company has been sourcing, roasting, and selling high-quality, handcrafted arabica coffee, along with other food and beverages items. Today, Starbucks is the number one specialty coffee brand in the world with 31,795 stores in 78 global markets. Additionally, Starbucks properties continue to become available to the commercial real estate (CRE) investor as premier net-lease properties with long-term, corporate-backed leases in prime locations, making this Westwood Net Lease Advisors’ Tenant of the Quarter.
Who is Starbucks Coffee Company?
Nearly fifty years ago, Starbucks opened its first store in Pike Place Market in Seattle, Washington. Now, there are close to 9,000 company-operated and 6,300 licensed stores in the United States, with countless stores opening monthly, and branded products sold in prominent retail stores.
Over the years, Starbucks has expanded its brand by acquiring Teavana, Tazo, Seattle’s Best Coffee, Evolution Fresh, La Boulange, and Ethos, and recently entered a Global Coffee Alliance with Nestlé. The leadership team continues to focus on innovation and endurance through a host of initiatives, including digital customer relations, the Starbucks® Rewards loyalty program, and multi-channel distribution with Starbucks’ Pick-Up only stores and “Starbucks Delivers,” which is in 49 U.S. markets, with plans for delivery in every state in 2020.
“With our commitment to build an enduring company, we continued to invest in our partners, in technology, and in our stores to enable predictable, sustainable growth, while delivering value for all of our stakeholders. These investments enabled us to accelerate the pace of innovation at Starbucks and deliver relevant, meaningful and inspiring experiences for our partners and customers throughout fiscal 2019.” Starbucks’ Proxy Statement
Financially Strong & Growing
In addition to steady stock market performance (NASDAQ: SBUX) and increasing market share, a Moody’s Baa1 rating and an S&P “investment-grade” BBB+ rating, Starbucks’ growth projection has no end in sight. According to Kevin Johnson, CEO and President, “building on solid business momentum from fiscal 2019, Starbucks performed very well throughout first quarter 2020, including one of the strongest holiday seasons in the history of our company. As a result, we are off to a strong start in fiscal 2020.”
As stated by the FY20 Q1 report, net revenues for the Americas segment grew 9% over Q1 FY19 to $5.0 billion, primarily driven by 6% growth in comparable-store sales with comparable transactions up 3%. The company opened 539 net new stores in Q1, yielding 31,795 stores at the end of the quarter, a 6% increase over the prior year. Consolidated net revenues of $7.1 billion grew 7% over the prior year.
“Our growth was fueled by a healthy balance of comparable sales growth and new store development, as well as continued expansion of our Global Coffee Alliance with Nestlé. Investments in our partners, beverage innovation, and digital customer relationships contributed not only to strong topline growth, but also significant margin expansion in the quarter.” – Kevin Johnson, Starbucks CEO and President
Why Starbucks is a Top Investment Opportunity
It is no secret that Starbucks’ success has been driven as much by its real estate as its coffee and coffeehouse experience, making it a favorite among net-lease investors. Stores are strategically situated in prime urban and suburban locations near other business and retail staples, and most often placed on the commuting side of traffic patterns.
The average sale price of a Starbucks store is $2-3M, which makes it attainable for new investors, and though not all stores are absolute triple-net (NNN) lease properties – some are modified NNN – they require very little landlord responsibility (roof and structure), which makes it viable to own a store in any state without worry, no matter where you live.
Starbucks also fulfills our recommendation to only invest with a creditworthy or investment-grade tenant with financial stability and growth potential. Most stores operate with a corporate-guaranteed, 10-year net lease, with ~10% rental increases every five years, and lease renewal options.
To Wrap it Up – Invest in a Starbucks Net-Lease Property
Starbucks Coffee Company is adding hundreds of locations to its U.S. market annually with a moderately low price-point, making these net-lease properties a great opportunity for the first-time buyer or seasoned CRE. They are lucrative, low maintenance, and high performing, offering a stable, worry-free monthly income and annual tax opportunities that preserve capital.
If you’re interested in buying a Starbucks, be sure to connect with a Westwood buyer’s advisor, who will review the national market, connect with colleagues, and find off-market and developing properties that meet your lifestyle and financial goals. We are 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 consultation, 314-997-5227.
