If you’re considering the commercial real estate scene to diversify your investment portfolio and earn a decent ROI, now’s the time to consider purchasing an NNN lease property that’ll attract high-profile tenants.
Numerous NNN leases comprise top-tier franchises like Arby’s, Starbucks, CVS Stores, Autozone, and Chipotle. In this article, we’ll be tilting our attention towards a convenience store making waves in the United States and other countries — Circle K.
Circle K is a global convenience store brand, reputed for their high-quality products and exemplary customer service. And with the entity’s fame growing daily, NNN investors seeking to make profitable investments should understand the inner workings of Circle K’s real estate requirements.
In this detailed guide, we’ll uncover the company’s site selection process and average lease rates.
To wrap things up, we’ll gauge whether this investment suits your investment portfolio expansion and passive income needs in 2023 and beyond.
Ready? Let’s get started!
How Circle K Chooses Site Locations
Circle K Stores, Inc. (AKA Circle K) was established in 1951 in El Paso, Texas. Despite filing for bankruptcy protection in 1990 and going through several owners since its inception, the company marked a resurgence when Canadian-based Alimentation Couche-Tard acquired it in 2003.
According to a 2020 estimate, Circle K has 9,700+ stores in North America (notably the United States and Canada) and over 2,600 in Europe. Also, the convenience store chain has an extra 2,380+ franchise stores worldwide.
With its successes, one thing is sure — Circle K doesn’t set up shop just anywhere. When selecting a location, the company considers certain factors to ensure the profitability of each outlet:
Market demand is one crucial factor that Circle K considers when choosing a site location. Here, they access the number of convenience stores located within the vicinity. One of Circle K’s real estate requirements stipulates that stores must be only set up in densely populated areas where the saturation of convenience stores is low. That way, their branded hubs will gain customers and lead to decent ROIs.
Visibility and Accessibility
For Circle K, ideal store locations attract numerous shoppers. However, this isn’t the only piece to the jigsaw. Circle K also considers accessibility and visibility when choosing a store location.
Accessibility-wise, they ensure the location has a spacious parking lot. Additionally, the vicinity must possess a fluid public transportation system to seamlessly convey customers to and from the store.
Regarding visibility, Circle K examines things from the customer’s point of view. The convenience store chain ensures all their outlets are located near landmarks identifiable by people driving or walking past. Its red and white-accented “Circle K” logo is also set up to capture the attention of road users from afar.
Store Size Regulations
Circle K stores are located across 47 US states. However, it’s vital to note that the convenience store chain has specific requirements regarding overall store size. The brand requires its stores to have sufficient space to streamline operations 24/7.
As seen on the Circle K Franchise Disclosure Document, all Circle K stores generally require real estate of approximately 3,200 square feet in size and 40,000 square feet of land to seamlessly incorporate to accommodate easements, parking lots, and the building itself.
Average Circle K Lease Rates
Many real estate investors lean towards convenience store chains like Circle K because they’re revered worldwide. For context, they’ve got 14,000+ operational stores in the United States and 26 other countries. With its worldwide reputation, it’s unsurprising that Circle K stores generate sales worth $800 per square foot.
These numbers mean Circle K is a low-risk investment with great marketability. Additionally, they’ve got an investment-grade guarantee — meaning NNN investors will receive annual rent until the tenant files for bankruptcy.
Most Circle K stores function as a triple-net lease. As the NNN property owner, you aren’t worried about expenses associated with the property. Here, your tenant (Circle K) settles all property-related fees, including maintenance, renovations, building insurance, and real estate taxes.
However, it’s pertinent to note that some Circle K outlets sign a double-net lease. With this leasing agreement in play, you’ll need to settle certain expenses (i.e., roofing and slight renovations). Therefore, before you sign a lease agreement with a franchise like Circle K, validate your contractual obligations.
NNN lease contracts with Circle K are long-term, usually ranging from 10 to 15 years. This timeline is great for NNN property investors, as they’re almost guaranteed rent.
But it gets better.
Rental escalations of 5% to 10% occur every five years on Circle K triple-net leases. As such, investors can trigger this clause, increase rent, and receive increased rent. Furthermore, Circle K NNN properties have a cap rate of 5.30%.
Like all contracts, triple-net leases signed with franchises like Circle K have a termination clause. If things go south, the company might pull out of the deal.
However, since Circle K has a rock-solid reputation in the convenience store market, you don’t have to fret. As long as the store associated with your NNN property makes decent revenue and profit values, they’ll see out the triple-net lease contract.
Is Circle K a Great Investment?
NNN lease investments aren’t 100% guaranteed. However, leasing your NNN property to a tenant like Circle K is an excellent investment for these reasons:
As we’ve highlighted, Circle K has 14,000 stores and counting in the United States and other countries. This number means they’ve gained a massive following, and are the go-to alternatives for anyone looking to patronize a convenience store.
Not resting on their laurels and developing more stores in accessible and visible areas, Circle K is a great tenant in the NNN lease sector.
High Credit Rating
Circle K has a BBB+ rating. This credit rating means they’ve got the financial backbone to retain their lease for 15+ years. As long as the store gets the patronage it requires to meet quarterly and annual targets, it’ll stick to the lease agreement.
No Landlord Responsibilities, EVER!
The fun of entering a triple-net lease agreement with Circle K, or any franchise, is the absence of landlord responsibilities. Once the contract starts, you aren’t obligated to cater to expenses accrued by the property.
Your only responsibility? Receiving rent.
Decent Cap Rate
The cap rate of Circle K NNN properties is 5.30%. Since this metric determines the expected return rate of a triple-net structure, investors can negotiate newer and improved contracts when they renew.
Purchase an ROI-Generating Circle K Store With NNN Deal Finder Leading the Charge
If you want to commence an NNN lease investment, consider high-profile franchises like Circle K. Why? Associated NNN properties have a stable year-on-year cap rate and provide a steady stream of passive income as the tenant isn’t likely to default.
But to pull off this investment, you need a dedicated real estate team to point you toward a cost-effective deal yielding positive dividends. With many alternatives, NNN Deal Finder should rank at the top of your bucket list.
Our streamlined and personalized approach will help you find the most profitable Circle K properties within your vicinity and other nationwide locations. Get the ball rolling with us today, and you’ll be smiling all the way to the bank! Give our experts a call to further discuss Circle K’s real estate requirements and the opportunity they may hold for you.