Operational Summary
7-Eleven, Inc. is the North American subsidiary of 7 & I Holdings, Inc., a Japanese-owned international chain of convenience stores. 7 & I Holdings, Inc. is the largest convenience store operator in the world; as of June 2018, the company operates, franchises and licenses over 66,500 locations across the globe, including over 8,300 company-owned and franchises stores in North America under the 7-Eleven, Inc. subsidiary. Originally known as the Southland Corporation in the US, the original American company was purchased out of bankruptcy by the Japanese corporation IYG Holding Company in 1991, which changed the company’s name to 7-Eleven, Inc. in 1999. Ito-Yokado Co., Ltd., the most profitable retailer in Japan, owned 51 percent of IYG at the time of the acquisition, and Seven-Eleven Japan Co., Ltd., the longtime 7-Eleven licensee in Japan, owned 49 percent.
In 1992, 7-Eleven completed additional financing for a $400 million commercial paper facility backed by Ito-Yokado aimed at streamlining its operations. Also in 1992, the company decided to leave the distribution and food processing business to focus on its core business: retail locations operating under the 7-Eleven brand. By 1996, the company had completed the most extensive store remodeling program in its history. Additionally, the company closed additional underperforming stores in the mid-to-late 1990s, shuttering 202 units from 1996 through 1998. By mid-1999, 7-Eleven had recorded eight straight quarters of U.S. same-store sales growth, the longest such stretch in the 1990s. As it looked ahead, 7-Eleven was counting on the full implementation of its retail information system to be the engine driving its growth well into the 21st century.
Today, 7-Eleven, Inc. is one of the largest, most successful retailers in the US. Supermarket News ranked 7-Eleven’s North American operations No. 11 in the 2007 “Top 75 North American Food Retailers” based on the 2006 fiscal year estimated sales of $15 billion. In 2010, 7-Eleven climbed to the No. 3 spot in Entrepreneur Magazine’s 31st Annual Franchise 500, “the first and most comprehensive ranking in the world,” marking the 17th year 7-Eleven was named in the top ten.
Real Estate Summary
Due to the company’s investment-grade credit rating, coupled with the relatively low price points and high quality of its underlying real estate, 7-Eleven is a dominant brand in the net lease investment sales market. The vast majority of 7-Eleven stores are prominent corner locations featuring traffic counts exceeding 25,000 vehicles per day, high visibility, excellent access and strong surrounding demographics from a standpoint of population density and median household income. Furthermore, every 7-Eleven lease agreement is guaranteed by the US subsidiary 7-Eleven, Inc., regardless of whether or not the location is a corporate or franchisee-operated store.
It is critical to differentiate between the two major types of 7-Eleven locations: those that feature gas pumps, and those that don’t. The non-gas convenience store, or “C-Store”, concept has a smaller footprint between 1,000 to 3,000 SF in gross leasable area that can fit into small retail strip centers, community shopping centers, retail condo spaces, and single tenant parcels between 0.5 to 0.75 acres in size. These leases are typically 10-15 years in length and feature rent escalations of 10%-15% every five years. Lease structures vary considerably, but the majority are “modified” triple net (“NNN”) leases with the tenant reimbursing for all landlord expenses, or double net (“NN”) leases in which the landlord is responsible for roof, structural repairs and parking lot maintenance, with the tenant paying for property taxes, insurance and interior repairs and maintenance (HVAC repair and replacement can be either a landlord or tenant expense, which varies on a lease-by-lease basis). Regarding their gas sites, 7-Eleven prefers to sign corporate-operated ground leases at prominent corner locations, or community shopping center or power center outparcel sites between 0.8 to 1.25 acres in size. These gas site ground leases are generally 20 years in length, feature rent escalations of 10%-15% every five years through the base term and options to extend, and are “absolute NNN” in structure in which the tenant pays the property taxes, insurance, and all repairs and maintenance.
| PROS | CONS |
| Industry-leading investment-grade credit | Compressed cap rates due to high investor demand |
| Rental escalations in base term | Generally high rental rates PSF that could prove hard to replace in the event 7-Eleven vacates |
| Low price point relative to similarly strong investment-grade tenants | Investor unable to depreciate improvements in ground-leased locations |
| Predominantly Absolute to Modified NNN ground leases with zero to limited landlord responsibilities | |
Widely considered "recession proof"
and "Amazon proof" | |
| Industry-leading market share and track record of profitability | |
| Predominantly corner locations in urban markets with excellent demographics and population density | |
| One of the lowest relocation rates in the net lease industry | |
