Net lease dollar store research report
3
www.bouldergroup.com THE NET LEASE DOLLAR STORE REPORT SEPTEMBER 2014 DOLLAR STORE PROPERTIES MEDIAN ASKING CAP RATES Q3 2013 Q2 2014 Basis Point Tenant (Previous) (Current) Change Dollar General 7.26% 6.75% -51 Family Dollar 8.00% 7.50% -50 Dollar Tree 7.75% 7.00% -75 MEDIAN ASKING CAP RATE BY LEASE TERM REMAINING Years Remaining Dollar General Family Dollar Dollar Tree 12-15 6.50% 5.75% N/A 9-11 7.50% 7.15% 6.80% 6-8 7.75% 7.85% 7.37% 3-5 8.42% 8.25% 8.25% 0-2 8.90% 8.80% 8.90% MEDIAN ASKING PRICE Median Asking Median Price Tenant Price Per Foot Dollar General $1,138,462 $125 Family Dollar $1,250,000 $139 Dollar Tree $1,556,110 $154 MARKET OVERVIEW Cap rates within the single tenant net lease dollar store sector compressed from the third quarter of 2013 to the second quarter of 2014 by 75 basis points to a 7.0% cap rate. The dollar store sector, for the purpose of this report, is defined as free standing Dollar General, Dollar Tree and Family Dollar properties, as these tenants represent the largest presence within the sector. Cap rates for Dollar General represented the lowest overall cap rates in the sector (6.75%) due to the abundance of newly constructed locations. Additionally, typical leases for Dollar General are 15 year and triple net as opposed to the typical ten year double net leases for Family Dollar and seven or ten year double net leases for Dollar Tree. However, recently Family Dollar has rewarded certain developers with fifteen year triple net leases with rental escalations in the primary term. Family Dollar properties with fifteen year leases and rental escalations make up approximately 20% of the Family Dollar properties on the market and have asking cap rates of 5.75%. The 75 basis point cap rate premium associated with these Family Dollar leases when compared to fifteen year Dollar General leases can be attributed to the greater rental escalations. New construction dollar stores remain at the forefront of investor demand as evidenced by the 50 basis point premium over the entire net lease dollar store sector. In the third quarter of 2014, new construction dollar stores made up 45% of the entire sector. As the dollar store sector continues to expand, with over 1,000 stores planned in 2014, new construction dollar stores with long term leases are more readily available than other net sectors. A significant event in the dollar store sector occurred in August 2014 when Dollar Tree announced a bid to acquire Family Dollar for $8.5 billion. Shortly thereafter, Dollar General announced a competing offer, however the bidding is ongoing. The immediate effect of the potential acquisition is unknown in the marketplace. In the meantime, some investors will stay on the sidelines waiting for the effect (store closure announcements, credit rating changes, etc.) of the potential transaction to play out. The supply for new construction dollar stores will continue to increase as over 1,000 stores were projected to be built in 2014. The single tenant net lease dollar store sector will remain active as these properties generally offer long term leases, investment grade tenants and attractive price points. However, until the Family Dollar acquisition concludes, some investors will focus their attention on other net lease sectors. MEDIAN NATIONAL CLOSED CAP RATE SPREAD Tenant Closed Ask Spread (bps) Dollar General 7.34% 7.08% 26 Family Dollar 7.77% 7.55% 22 Dollar Tree 7.50% 7.25% 25
-
Upload
randy-blankstein -
Category
Documents
-
view
215 -
download
1
description
The Boulder Group’s Research Department has released a new research report providing comprehensive numbers and analysis of the activity in the National Net Lease Dollar Store Market.
Transcript of Net lease dollar store research report
www.bouldergroup.com
THE NET LEASEDOLLAR STORE REPORT
SEPTEMBER 2014
DOLLAR STORE PROPERTIESMEDIAN ASKING CAP RATES
Q3 2013 Q2 2014 Basis Point Tenant (Previous) (Current) Change
Dollar General 7.26% 6.75% -51
Family Dollar 8.00% 7.50% -50
Dollar Tree 7.75% 7.00% -75
MEDIAN ASKING CAP RATEBY LEASE TERM REMAINING Years Remaining Dollar General Family Dollar Dollar Tree
12-15 6.50% 5.75% N/A9-11 7.50% 7.15% 6.80%6-8 7.75% 7.85% 7.37%3-5 8.42% 8.25% 8.25%0-2 8.90% 8.80% 8.90%
MEDIAN ASKING PRICEMedian Asking Median Price
Tenant Price Per FootDollar General $1,138,462 $125
Family Dollar $1,250,000 $139
Dollar Tree $1,556,110 $154
MARKET OVERVIEWCap rates within the single tenant net lease dollar store sector compressed from the third quarter of 2013 to the second quarter of 2014 by 75 basis points to a 7.0% cap rate. The dollar store sector, for the purpose of this report, is defined as free standing Dollar General, Dollar Tree and Family Dollar properties, as these tenants represent the largest presence within the sector. Cap rates for Dollar General represented the lowest overall cap rates in the sector (6.75%) due to the abundance of newly constructed locations. Additionally, typical leases for Dollar General are 15 year and triple net as opposed to the typical ten year double net leases for Family Dollar and seven or ten year double net leases for Dollar Tree. However, recently Family Dollar has rewarded certain developers with fifteen year triple net leases with rental escalations in the primary term. Family Dollar properties with fifteen year leases and rental escalations make up approximately 20% of the Family Dollar properties on the market and have asking cap rates of 5.75%. The 75 basis point cap rate premium associated with these Family Dollar leases when compared to fifteen year Dollar General leases can be attributed to the greater rental escalations.
New construction dollar stores remain at the forefront of investor demand as evidenced by the 50 basis point premium over the entire net lease dollar store sector. In the third quarter of 2014, new construction dollar stores made up 45% of the entire sector. As the dollar store sector continues to expand, with over 1,000 stores planned in 2014, new construction dollar stores with long term leases are more readily available than other net sectors.
A significant event in the dollar store sector occurred in August 2014 when Dollar Tree announced a bid to acquire Family Dollar for $8.5 billion. Shortly thereafter, Dollar General announced a competing offer, however the bidding is ongoing. The immediate effect of the potential acquisition is unknown in the marketplace. In the meantime, some investors will stay on the sidelines waiting for the effect (store closure announcements, credit rating changes, etc.) of the potential transaction to play out.
The supply for new construction dollar stores will continue to increase as over 1,000 stores were projected to be built in 2014. The single tenant net lease dollar store sector will remain active as these properties generally offer long term leases, investment grade tenants and attractive price points. However, until the Family Dollar acquisition concludes, some investors will focus their attention on other net lease sectors.
MEDIAN NATIONAL CLOSEDCAP RATE SPREAD
Tenant Closed Ask Spread (bps)Dollar General 7.34% 7.08% 26
Family Dollar 7.77% 7.55% 22
Dollar Tree 7.50% 7.25% 25
www.bouldergroup.com
THE NET LEASEDOLLAR STORE REPORT
SEPTEMBER 2014
PERCENTAGE OF DOLLAR STORES ON THE MARKET BY TENANT
Percentage Tenant of Market
Dollar General 53%
Family Dollar 40%
Dollar Tree 7%
DOLLAR STORE MEDIAN ASKING CAP RATE BY REGION
WEST
MOUNTAINMIDWEST
SOUTH
NORTHEAST
NORTHEAST
SOUTH
MIDWESTMOUNTAIN
WEST
6.50%
7.17%
6.98%
6.75%
6.50%
5.88%
7.58%
7.83%
7.14%
6.00%
6.69%
7.20%
6.70%
7.50%
8.25%
DOLLAR STORE VS RETAIL NET LEASE MARKET CAP RATE
Q3 2013 Q2 2014 Sector (Previous) (Current)
Dollar Store 7.75% 7.00%
Market 7.02% 6.50%
Dollar Store Difference (bps) -73 -50
www.bouldergroup.com
THE NET LEASEDOLLAR STORE REPORT
SEPTEMBER 2014
Dollar General Family Dollar Dollar Tree
Credit Rating (S&P) BBB- (Stable) BBB- (Stable) Not Rated
Stock Symbol DG FDO DLTR
Market Cap $19 billion $9 billion $11 billion
Revenue $18 billion $10 billion $8 billion
2014 Stores Planned* 700 525 360
Number of Stores 11,000 8,100 5,080
New Lease Type Triple Net Double Net Double Net
Typical Lease Term 15 years primary term with twenty years of options
10 or 15 years primary term with twenty-five years of options
7 or 10 years primary term with ten years of options
Typical Rent Increases None in primary term; 10% each option period
None in primary term; 10% each option period
$0.50 per sqaure foot every five years
COMPANY AND LEASE OVERVIEW
FOR MORE INFORMATIONAUTHORJohn Feeney | Vice [email protected]
CONTRIBUTORSRandy Blankstein | [email protected]
Jimmy Goodman | [email protected]
Zach Wright | Research [email protected]
© 2014. The Boulder Group. Information herein has been obtained from databases owned and maintained by The Boulder Group as well as third party sources. We have not verified the information and we make no guarantee, warranty or representation about it. This information is provided for general illustrative purposes and not for any specific recommendation or purpose nor under any circumstances shall any of the above information be deemed legal advice or counsel. Reliance on this information is at the risk of the reader and The Boulder Group expressly disclaims any liability arising from the use of such information. This information is designed exclusively for use by The Boulder Group clients and cannot be reproduced, retransmitted or distributed without the express written consent of The Boulder Group.
*Estimates
Jordan Kaufman | Vice [email protected]
