Not all leases in a multi-unit portfolio carry the same risk. Some stores are on well-negotiated, stable leases where CAM has been consistent for years and the terms are straightforward. Others are on aging leases with no CAM caps, landlords who push boundaries on what they include in the pool, and audit windows that are approaching expiration without review.
Treating all locations equally — either by reviewing everything in equal depth or by reviewing nothing at all — is inefficient. The operators who manage occupancy costs well are the ones who have a ranking system that tells them where to spend their limited review time.
The 5-Factor Portfolio Ranking Framework
The following five factors, scored together, identify which stores have the highest occupancy cost risk and which are low-risk by comparison. The goal is not a precise score — it is a relative ranking that separates urgent from routine.
Factor 1: OCR vs. Concept Benchmark (High Risk = 3, Medium Risk = 2, Low Risk = 1)
Occupancy cost ratio is total occupancy cost (base rent plus all NNN) divided by gross revenue for the location. Compare each store's OCR to the concept benchmark for your franchise system.
- Store more than 3 percentage points above benchmark: 3 (High Risk)
- Store 1-3 points above benchmark: 2 (Medium Risk)
- Store at or below benchmark: 1 (Low Risk)
A store running 13% OCR against an 8% concept benchmark has a structural occupancy cost problem. The cause may be a below-revenue location, an above-market lease, or CAM overcharges — but the number signals that the cost structure deserves scrutiny.
Factor 2: CAM/SF vs. Portfolio Average (High Risk = 3, Medium Risk = 2, Low Risk = 1)
Calculate CAM per square foot for each store. Compare to the portfolio average for comparable property types.
- More than 25% above average: 3 (High Risk)
- 10-25% above average: 2 (Medium Risk)
- Within 10% of average: 1 (Low Risk)
A store that is 30% above the portfolio average on CAM/SF with no obvious property type justification is an outlier that warrants investigation.
Factor 3: Year-Over-Year CAM Increase (High Risk = 3, Medium Risk = 2, Low Risk = 1)
Compare this year's CAM total to last year's for each location.
- Increase greater than 15%: 3 (High Risk)
- Increase 7-15%: 2 (Medium Risk)
- Increase 0-7% (roughly inflation): 1 (Low Risk)
Significant year-over-year increases — especially without a clear explanation like a property tax reassessment — often indicate an error or a billing methodology change worth scrutinizing.
Factor 4: Audit Window Status (High Risk = 3, Medium Risk = 2, Low Risk = 1)
Review the audit window status for each location based on the reconciliation delivery date and the lease window period.
- Window closes within 90 days: 3 (High Risk — urgent)
- Window closes in 90-180 days: 2 (Medium Risk)
- Window closes in more than 180 days: 1 (Low Risk — adequate time)
Audit window status is a time-sensitive factor that overrides everything else. A low-risk store by all other factors becomes an immediate priority if its audit window is closing in 45 days. The window closure is permanent; other risk factors can wait.
Factor 5: Lease Term Remaining (High Risk = 3, Medium Risk = 2, Low Risk = 1)
Review remaining lease term to assess renewal leverage and long-term lease quality risk.
- Lease expires in less than 18 months (with no exercised option): 3 (High Risk — renewal urgency)
- Lease expires in 18-36 months: 2 (Medium Risk)
- Lease expires in more than 36 months: 1 (Low Risk)
Short remaining term without a renewal path creates both business risk (potential displacement) and negotiating leverage risk (landlord holds the terms).
Scoring and Ranking
Add the five factor scores for each store. Total possible range: 5 (all low risk) to 15 (all high risk).
Example for a 6-store portfolio:
| Store | OCR | CAM/SF | YoY | Window | Term | Total | Priority |
|---|---|---|---|---|---|---|---|
| A | 3 | 3 | 3 | 2 | 1 | 12 | 1st |
| B | 1 | 1 | 1 | 3 | 2 | 8 | 2nd |
| C | 2 | 2 | 2 | 1 | 3 | 10 | 3rd |
| D | 1 | 1 | 1 | 1 | 1 | 5 | Low |
| E | 2 | 1 | 1 | 2 | 2 | 8 | Moderate |
| F | 1 | 2 | 1 | 3 | 1 | 8 | 2nd (tie) |
Store A has the highest total risk score — above-benchmark OCR, above-average CAM/SF, large year-over-year increase. First priority for deep review.
Store B scores 8 largely because the audit window is closing within 90 days (score of 3 on that factor). Even though the other indicators are low-risk, the window urgency makes this second priority.
Store D is genuinely low-risk across all factors. Light review — confirm consistency, log the reconciliation — and move on.
What a High-Quality Lease Looks Like
A "high-quality lease" by this framework has these characteristics:
- OCR at or below concept benchmark
- CAM/SF consistent with portfolio average for the property type
- CAM increases year-over-year tracking roughly with inflation
- Audit window recently reviewed (open with adequate time, or recently exercised)
- Substantial term remaining with options that provide long-term security
A high-quality lease is not necessarily a cheap lease. A store with above-average revenue can afford a higher OCR. A high-service-level property may have higher CAM/SF for legitimate reasons. "High quality" means the economics are appropriate given the location's performance, the terms are protective, and there are no anomalies worth investigating.
What a High-Risk Lease Looks Like
A high-risk lease has the inverse characteristics:
- OCR well above benchmark despite normal revenue
- CAM/SF materially above comparable locations
- Significant unexplained year-over-year CAM increase
- Audit window closing soon with no recent review
- Limited term remaining with uncertain renewal path
High-risk leases are not necessarily leases with overcharges. Some high-risk scores reflect genuinely above-market lease terms signed years ago. But the combination of anomalous cost metrics and an expiring audit window creates the possibility of unrecovered overcharges that should be investigated.
Using the Ranking for Annual Planning
Run this scoring exercise once per year, typically when the last reconciliation for the prior year has been received (usually Q1-Q2). Use the ranking to:
- Assign deep reviews to the top 2-3 scoring stores
- Confirm audit window deadlines for any store with a Factor 4 score of 3 and treat them as urgent
- Schedule renewal conversations for any store with a Factor 5 score of 3
- Document all stores at Factor 5-8 as low-priority, confirmed in the register, with no immediate action required
The ranking is a planning tool, not a permanent label. A store that scores 5 this year might score 11 next year if its audit window closes and CAM spikes. Rerun the exercise annually.
Verification Action
Score your portfolio today using the 5-factor framework. Take 30 minutes, pull the five data fields for each location, and complete the scoring table. Identify your top-priority store by total score. If your top-priority store has a Factor 4 score of 3 (window closing within 90 days), treat the review as urgent. Assign it to a named person with a completion date before the window closes.
Frequently Asked Questions
What if I don't know the OCR benchmark for my concept? Start by calculating OCR for all your own stores. The range and median from your own portfolio gives you a working internal benchmark. For system-wide benchmarks, check whether your franchisor publishes financial performance representations in the FDD, or raise it as an FAC request.
Should Factor 4 (audit window status) always override the total score for priority setting? Yes. A window closing in 45 days cannot wait for the regular planning cycle. Even a low-scoring store by other factors should be treated as an immediate priority when the audit window is imminent. Once the window closes, the opportunity is permanently gone.
Can I use this framework before I have multiple years of CAM data? For stores where you only have one year of CAM data, skip Factor 3 (year-over-year change) and score on four factors. The framework still provides relative ranking — it just has less information on cost trend.
What do I do with a store that consistently scores high year after year? A persistently high-risk score suggests a structural lease quality issue. This store may have been negotiated poorly, or it may be in a property where the landlord has chronically pushed cost boundaries. At renewal time, the specific terms that are producing the high risk score are exactly what to negotiate most aggressively.
How does this framework help with acquisition decisions when buying existing franchise stores? Run the scoring framework on any store you're considering acquiring. A target with a score of 13 has occupancy cost issues that need to be priced into the transaction. A target with a score of 6 has a lease quality profile that supports the asking price. The framework gives you a structured way to assess lease risk as part of due diligence.
Run your reconciliation and lease through CAMAudit to check for these patterns against your specific lease terms.