Research Report

Tenant Profile – Hardee’s

Wilber Hardee opened his first restaurant in Greenville, North Carolina in 1960. Five months after opening, Hardee’s had its first franchisee. This burger chain has grown at an impressive rate, opening its 1,000th restaurant in just 15 years of business.

In 1997, CKE Restaurants Holding, Inc., the parent company of Carl’s Jr. bought Hardee’s for $327 million. This acquisition created a chain of restaurants operating under two names that spans from coast to coast. These chains now have over 3,800 locations in 44 states and 40 foreign countries and US territories. As of 4/13/2017, 94% of the Carl’s Jr. /Hardee’s system are franchisees.

Net Lease Overview

Hardee’s is a popular net lease investment due to the adaptability of the spaces they occupy. Typically Hardee’s will operate in locations ranging from 2,500 – 3,000 square feet situated on 0.60 – 1.50 acres of land in suburban areas throughout the Midwest and Southeast. The prototypical store model offers a drive-thru window, which can be a major draw for new tenants if Hardee’s were to vacate the property.

Hardee’s leases make these properties a very attractive asset for an investment property. Hardee’s will typically operate under a triple net (NNN) lease, leaving the investor with no landlord responsibilities. These leases will also lock the tenant in for a long period of time, usually 20 years, and provide options to extend the lease beyond the initial term. While many locations are franchisees with no standard formula for rent bumps, most leases will feature some form of rent increase, commonly a five (5) – ten (10) percent increase every five years. These factors add up to a hands-off investment, with a stable, long-term tenant with periodic rent escalations.

All of the Hardee’s closings in the past 12 months in South Carolina were Corporate backed leases. These corporate leases tend to have lower cap rates than their franchise counterparts.
Alabama was nearly the inverse of South Carolina. In the past 12 months, nearly all the Hardee’s deals closing in Alabama were franchise deals.

There is a 71 bps difference between the corporate guaranteed locations and franchisee owned locations. The value placed on owning a location with a corporate guarantee accounts for the difference in these cap rates.

Across the major QSR tenants, the average cap rate over the last 12 months has been very similar, only a spread of 19 bps.

While most QSR tenants are franchisees there are a few corporate guaranteed leases. Properties with corporate guarantees trade at lower cap rates.

Year 2011 2012 2013 2014 2015 2016 2017
National STNL Cap Rates 7.59% 7.18% 7.15% 6.96% 6.39% 6.24% 6.36%
National Hardee’s Cap Rates 8.14% 7.51% 6.88% 6.14% 6.13% 5.99% 5.88%
10 Year Treasury Rates 1.89% 1.78% 3.04% 2.17% 2.27% 2.45% 2.29%

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