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Credit Lease Loan Program

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Nationwide Credit Lease Sample Loan Program:

Below find a sample Starbucks Credit Lease Loan Program terms: Interest Rates are as of September 16, 2020.

National Starbucks Credit Lease Program Highlights:

  • Loans from $750,000 to $10,000,000 and up
  • Multiple structures offered

Including 10 Year Fixed Rate

  • Typical rates presently ranging from 3.79% to 3.99%
  • Typical amortization: 25 years to 30 years
  • Most require a minimum down payment between 20% and 25% of the purchase.
  • Caffrey Loan Placement fee 1.0%
  • Typical recourse: 20% to 25% Limited
  • Flexible prepayment with extra 10% annual paydown allowed with no premium charged
  • Minimum remaining primary lease term: 7 Years
  • All loans assumable, with only ¼% fee
  • Optional 50-day rate lock available
  • Rate Lock—50 days from CCL acceptance and deposit submission
  • Expedited closing process targets 33—35 days, CCL to potential closing table
Background on Starbucks:

Information is from Starbucks web site: “Since 1971, Starbucks Coffee Company has been committed to ethically sourcing and roasting high-quality arabica coffee. Today, with more than 32,000 stores around the globe, the Company is the premier roaster and retailer of specialty coffee in the world. Through our unwavering commitment to excellence and our guiding principles, we bring the unique Starbucks Experience to life for every customer through every cup. To share in the experience, please visit us in our stores or online at stories.starbucks.com or www.starbucks.com”

In light of the COVID-19 pandamic both Moody’s and Standard & Poors (“S&P”) changed the forecast for the company to Negative on May 4, 2020.  Presently S&P still shows Starbucks with an investment grade credit rating of BBB+ with a Negative Outlook.  Similarly, Moody’s also shows and investment grade credit rating of Baa1 (as of May 4, 2020) with a Negative Outlook.

Here is some insight as to why S&P placed the firm on Negative Oultook in May of 2020.  The real estate investor might find this informaiton helpful when trying to analysis the investment when seeking a Starbucks Credit Lease Loan.
  • Seattle-based coffee retailer Starbucks Corp. announced a $3 billion notes offering that will build its liquidity cushion and pre-fund upcoming maturities during a period of heightened stress and uncertainty caused by the coronavirus (COVID-19) pandemic.
  • We are affirming the ‘BBB+’ issuer credit rating on Starbucks and revising the outlook to negative from stable to reflect our expectation for pressured earnings and cash flow this year and the risk of a sustained period of weaker credit metrics arising from the effects of the pandemic.
  • At the same time, we are assigning our ‘BBB+’ issue-rating to the proposed notes.
  • The negative outlook reflects the risk of a downgrade if Starbucks experiences extended disruption to its operations that causes credit metric weakness for longer than we currently forecast.
The outlook revision reflects our worsening view of the impact of the COVID-19 pandemic on Starbucks’ operations and our weaker economic forecast which elevates the risk of prolonged credit measure deterioration.

Starbucks’ operations have been affected globally by the COVID-19 pandemic and we expect earnings and cash flow to be pressured as temporary store closures and lower customer traffic reduce sales volumes. We expect earnings flow through on lost sales to remain elevated due to higher COVID-19 related expenses, including wage premiums, enhanced benefits, store safety supplies, and scrapped inventory. However, marginal profit rates should sequentially improve as these temporary costs are reduced.

In the U.S, the company’s largest market by sales, approximately 50% of company-operated stores and 46% of licensed stores were temporarily closed as of last week. Most stores are currently operating a to-go-only model and government stay-at-home guidelines have reduced discretionary out of home consumption. As stores begin to re-open this month, we believe Starbucks will contend with a weak economic backdrop that will also pressure demand. We also believe Starbucks will face a more difficult environment following our updated domestic economic forecast, which now includes a significant 5.2% domestic GDP decline in 2020 and elevated unemployment of close to 9% for the full year. As a result of these difficult operating conditions, we expect operating cash flow to weaken substantially and notwithstanding reduced capital spending, we forecast the company will generate negative free operating cash flow (FOCF) in fiscal 2020.

Still, Starbucks entered the crisis on a solid liquidity footing which it supplemented with $2.25 billion of bond and term loan issuances in March and is further adding to with the current proposed note offering.  We hope this information is helpful when looking for a Starbucks Credit Lease Loan Program.

Its massive global scale and liquidity put the company in a position to weather significant stress associated with the COVID-19 pandemic. However, we now anticipate credit measures will deteriorate to about 6x adjusted debt to EBITDA this year, but be on-track to return to about 3x by the end of calendar 2021.

Under our base-case forecast, we expect significant recovery in sales volumes and operating profit in 2021, leading to positive FOCF, which is deployed toward reducing debt. If shareholder-friendly activity combined with a slower recovery jeopardize credit metric improvement, we could lower the rating. The company has halted share repurchases but expects to continue paying its regular dividends, which total about $1.9 billion annually. Given its public commitment to the current investment-grade rating and 3x leverage target, we view the dividend as an additional lever the company could pull to maintain liquidity and improve credit metrics, if needed.

Now fast forward to Septemeber 30, 2020 where Starbucks announced an increase in the quarterly dividend payment.  The following is from Starbucks Investor Page:

SEATTLE–(BUSINESS WIRE)– Starbucks Corporation (NASDAQ: SBUX) today announced that its Board of Directors approved a 10% increase in the Company’s quarterly cash dividend. The quarterly cash dividend will increase from $0.41 to $0.45 per share and will be effective with the dividend payment to be distributed on November 27, 2020 to shareholders of record on November 12, 2020. This increase raises the Company’s annual dividend rate to $1.80 per share.

“The Board’s decision to raise our quarterly dividend demonstrates confidence in the strength of our recovery and the robustness of our long-term growth model,” said Kevin Johnson, Starbucks president and ceo. “Our cash flow generation is strong, and we remain committed to reducing our financial leverage while continuing to invest for future growth,” concluded Johnson.

From the actions of the Starbucks Board it appears they have a positive outlook for the business model during this pandemic.  Lenders also remain positive towards the continued financial strength of Starbucks Corp and are offerring very attractive loan terms for the real estate investor.  Starbucks Credit Lease Loan Programs are available through Caffrey & Company LLC.

For more details on the above loan product or if you would like to investigate other loan products please see other commercial real estate interest rates on our web site or contact Mike Caffrey.

On our web site you can read about specific loan products: www.caffreyloans.com/loan-products, offered by Freddie Mac, Fannie Mae, HUD/FHA, Commercial Mortgage Back Securities (CMBS) and other loan products. Want more details on sample interest rates for apartment check out Interest Rates for Apartment Loans also on our web site: www.caffreyloans.com/apartment-loans.

Have a question please contact
Mike Caffrey
Telephone: (913) 402-7077
Mike@CaffreyLoans.com
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