Research Report

Tenant Profile – Wendy’s

On November 15, 1969 in Columbus, OH, Dave Thomas came up with the concept of what we know today as Wendy’s fast food restaurant. From those humble beginnings, Wendy’s has grown into a fast food behemoth. Currently there are over 6,700 restaurants in operation globally, with plans for continued expansion. The Wendy’s Company, is publicly traded under “WEN” and is currently rated as B2 and B by Moody’s and S&P respectively.

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Net Lease Overview

As a sector, Quick Service Restaurant (QSR) remains a very crowded and competitive sector. Since 1969, Wendy’s has firmly established its reputation for quality food and service by basing their development around the pillar, “Quality is Our Recipe.” This mission statement has been implemented throughout their business strategy including the solid, ever-developing expansion plan that secures them as a strong competitor within the industry.

Properties are usually located in heavily trafficked areas, featuring ease of access from busy highways and roads, and are configured into a basic design, making it easy for the owner to fill the space should Wendy’s not renew their lease. Wendy’s will usually occupy pad sites that are NNN leases, alleviating the property owner of the responsibility in maintaining the structure, and allow them to collect passive income. Typically, the leases will be longer in term, around 20 years, with additional options for the tenant to extend. The option periods incorporate rental escalations to offset inflation. Not all leases with Wendy’s are corporate leases, however, as there are franchisee operators that can own multiple different locations. As a result, the guarantees will vary.

With a firm dedication to serving quality burgers with fresh ingredients, Wendy’s has developed a loyal following. Their history shows a proven model of success that we expect to see continue. Known for their “Fresh, Never Frozen” tagline, Wendy’s is able to keep up with nutrition-conscious customers by providing fresh products compared to competitors. By looking at their long history of success, we can see that Wendy’s has no problem with innovating and continue appealing to changing customer dynamics. Their adaptability and cutting-edge business plans continue to solidify their future as a QSR favorite.

Compared to other top brands in this sector, Wendy’s cap rates fall in a similar line to Burger King compared to McDonald’s properties, which are set up as Ground Leases making them more of a premium property with lower cap rates. We see Wendy’s 10+ year remaining cap rate being higher than the overall average. This is because more sales with shorter terms remaining were completed in Florida and California’s premium markets.

Compared to the Single Tenant Net Lease average we see Wendy’s trading at a more premium cap than the overall market. For properties that have 10+ Years remaining Wendy’s trade closer to the market average.

Research has indicated Wendy’s trades at consistent cap rates all lower than the STNL rate. However, 2019 was the first time we’ve seen the rate increase since 2015-2016. Wendy’s has historically shown it is a stable tenant and shows signs of continued growth.

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Amanda WillisTenant Profile – Wendy’s

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