Net Lease Auto Parts Store Research Report
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www.bouldergroup.com THE NET LEASE AUTO PARTS REPORT MARCH 2015 Q4 2013 Q4 2014 Basis Point Tenant (Previous) (Current) Change Advance Auto Parts 7.20% 7.00% -20 AutoZone 6.00% 5.98% -2 O’Reilly Auto Parts 6.00% 5.95% -5 MEDIAN ASKING PRICE AUTO PARTS STORE PROPERTIES MEDIAN ASKING CAP RATES Median Median Price Tenant Asking Price Per Foot Advance Auto Parts $1,280,000 $183 AutoZone $1,431,500 $202 O'Reilly Auto Parts $1,780,436 $246 Percentage Tenant of Market Advance Auto Parts 59.0% AutoZone 15.7% O’Reilly Auto Parts 25.3% AUTO PARTS STORE PROPERTIES VS. RETAIL NET LEASE MARKET MARKET OVERVIEW Cap rates for the single tenant net leased auto parts store sector increased by three basis points from the fourth quarter of 2013 to the fourth quarter of 2014 to 6.25%. The auto parts sector, for the purpose of this report, is defined as Advance Auto Parts, Auto Zone and O’Reilly Auto Parts as they account for the highest percentage of transactions of properties tenanted by auto parts retailers. The primary reason for the insignificant change in cap rates during a period which overall retail cap rates declined by 35 basis points is due to the increased supply of vintage properties with shorter term leases. In the fourth quarter of 2014, Advance Auto Parts properties with less than 10 years remaining on their leases made up 69% of all Advance Auto Parts properties on the market. Auto part store properties remain in high demand among net lease investors as there are limited investment grade options priced below $2 million outside of dollar stores. Additionally, investors seek to acquire auto parts stores for residual value as they are typically constructed as vanilla boxes which are easier to re-tenant in the event the tenant vacates. In the fourth quarter of 2014, the supply of net leased auto parts store increased by 22%. Auto part retailers continue their expansion plans and opened more than 500 stores in 2014. Despite the combined 500 new store openings in 2014, the supply of new construction auto part stores only made up 21% of the sector. This can best be attributed to the fact that the auto part retailers own an increasingly high percentage of their locations. Furthermore, owners of properties with shorter term leases have added supply to the market to take advantage of the low cap rate environment as the consensus of net lease participants believe that the market strongly favors sellers. The retail industry continues to thrive as consumer demand for auto parts stores is increasing due to aging vehicles on the roads. A recent report by R.L. Polk & Co. and IHS Automotive shows that the average age of vehicles on the road has increased to 11.5 years. Additionally, the amount of vehicles over 12 years old is expected to increase 15% by 2019. Transaction volume in the auto parts sector should remain strong as investors have a positive outlook of the fundamentals of the auto parts industry. Recently constructed properties with long term leases should continue to be in the highest demand as these assets are the most sought after amongst 1031 buyers due to their lower absolute price point. Auto parts store properties with shorter lease terms located in areas with strong real estate fundamentals also remain in high demand. PERCENTAGE OF AUTO PARTS STORES ON THE MARKEY BY TENANT Q4 2013 Q4 2014 Tenant (Previous) (Current) Auto Parts 6.22% 6.25% Market 6.85% 6.50% Auto Parts Premium (bps) 63 25
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The Boulder Group | Net Lease Auto Parts Store Research Report
Transcript of Net Lease Auto Parts Store Research Report
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THE NET LEASEAUTO PARTS REPORT
MARCH 2015
Q4 2013 Q4 2014 Basis Point
Tenant (Previous) (Current) Change
Advance Auto Parts 7.20% 7.00% -20
AutoZone 6.00% 5.98% -2
OReilly Auto Parts 6.00% 5.95% -5
MEDIAN ASKING PRICE
AUTO PARTS STORE PROPERTIESMEDIAN ASKING CAP RATES
Median Median Price
Tenant Asking Price Per Foot
Advance Auto Parts $1,280,000 $183
AutoZone $1,431,500 $202
O'Reilly Auto Parts $1,780,436 $246
Percentage
Tenant of Market
Advance Auto Parts 59.0%
AutoZone 15.7%
OReilly Auto Parts 25.3%
AUTO PARTS STORE PROPERTIESVS. RETAIL NET LEASE MARKET
MARKET OVERVIEW
Cap rates for the single tenant net leased auto parts store sector increased by three basis points from the fourth quarter of 2013 to the fourth quarter of 2014 to 6.25%. The auto parts sector, for the purpose of this report, is defined as Advance Auto Parts, Auto Zone and OReilly Auto Parts as they account for the highest percentage of transactions of properties tenanted by auto parts retailers. The primary reason for the insignificant change in cap rates during a period which overall retail cap rates declined by 35 basis points is due to the increased supply of vintage properties with shorter term leases. In the fourth quarter of 2014, Advance Auto Parts properties with less than 10 years remaining on their leases made up 69% of all Advance Auto Parts properties on the market. Auto part store properties remain in high demand among net lease investors as there are limited investment grade options priced below $2 million outside of dollar stores. Additionally, investors seek to acquire auto parts stores for residual value as they are typically constructed as vanilla boxes which are easier to re-tenant in the event the tenant vacates. In the fourth quarter of 2014, the supply of net leased auto parts store increased by 22%. Auto part retailers continue their expansion plans and opened more than 500 stores in 2014. Despite the combined 500 new store openings in 2014, the supply of new construction auto part stores only made up 21% of the sector. This can best be attributed to the fact that the auto part retailers own an increasingly high percentage of their locations. Furthermore, owners of properties with shorter term leases have added supply to the market to take advantage of the low cap rate environment as the consensus of net lease participants believe that the market strongly favors sellers.The retail industry continues to thrive as consumer demand for auto parts stores is increasing due to aging vehicles on the roads. A recent report by R.L. Polk & Co. and IHS Automotive shows that the average age of vehicles on the road has increased to 11.5 years. Additionally, the amount of vehicles over 12 years old is expected to increase 15% by 2019.Transaction volume in the auto parts sector should remain strong as investors have a positive outlook of the fundamentals of the auto parts industry. Recently constructed properties with long term leases should continue to be in the highest demand as these assets are the most sought after amongst 1031 buyers due to their lower absolute price point. Auto parts store properties with shorter lease terms located in areas with strong real estate fundamentals also remain in high demand.
PERCENTAGE OF AUTO PARTS STORESON THE MARKEY BY TENANT
Q4 2013 Q4 2014
Tenant (Previous) (Current)
Auto Parts 6.22% 6.25%
Market 6.85% 6.50%
Auto Parts Premium (bps) 63 25
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THE NET LEASEAUTO PARTS REPORT
MARCH 2015
MEDIAN ASKING CAP RATE BY LEASE TERM REMAINING
Years Remaining Advance Auto Parts AutoZone O'Reilly Auto Parts
18-20 N/A N/A 5.75%
15-17 5.80% 5.55% 5.90%
10-14 6.25% 5.95% 6.10%
6-9 7.08% 6.65% 6.75%
Under 5 7.75% 7.00% 7.95%
SELECT SINGLE TENANT AUTO PARTS STORES SALES COMPARABLES
Lease TermSale Date Tenant City State Price Price S.F. Cap Rate Remaining
Dec-14 Advance Auto Parts Franklin TN $2,325,000 $332 6.71% 8
Jan-15 Advance Auto Parts Pflugerville TX $2,280,000 $330 6.00% 15
Dec-14 AutoZone Rome GA $2,182,000 $295 5.50% 15
Jan-15 AutoZone San Bernardino CA $1,800,000 $171 7.04% 3
Nov-14 O'Reilly Auto Parts Greenville SC $1,788,000 $247 5.80% 19
Oct-14 Advance Auto Parts Chittenango NY $1,650,000 $242 7.49% 8
Nov-14 O'Reilly Auto Parts Federal Heights CO $1,500,000 $214 6.20% 12
Sep-14 O'Reilly Auto Parts Hendersonville NC $1,486,000 $218 6.38% 20
Dec-14 AutoZone Wauchula FL $1,400,000 $207 6.21% 11
Oct-14 Advance Auto Parts New Braunfels TX $1,370,000 $223 7.03% 10
Jul-14 AutoZone (GL) Phoenix AZ $1,370,000 -- 5.26% 15
Jul-14 Advance Auto Parts Cleveland TN $1,300,000 $185 8.78% 4
Dec-14 O'Reilly Auto Parts Elgin IL $1,297,000 $170 6.86% 8
Dec-14 O'Reilly Auto Parts Blackstone VA $1,296,000 $202 6.38% 20
Aug-14 O'Reilly Auto Parts Monahans TX $975,000 $152 6.76% 14
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THE NET LEASEAUTO PARTS REPORT
MARCH 2015
WEST
MOUNTAINMIDWEST
SOUTH
NORT
HEAS
T
NORT
HEAS
T
SOUTH
MIDWESTMOUNTAIN
WEST
6.45%
6.01%
6.10%
6.50%
5.50%
AUTO PARTS STORE MEDIAN ASKING CAP RATES
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THE NET LEASEAUTO PARTS REPORT
MARCH 2015
FOR MORE INFORMATION
AUTHORJohn Feeney | Vice [email protected]
Randy Blankstein | [email protected]
Jimmy Goodman | [email protected]
Jordan Kaufman | Vice [email protected]
2015. 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.
Zach Wright | Research [email protected]
CONTRIBUTORS
COMPANY COMPARISON
Advance Auto Parts AutoZone OReilly Auto Parts
Credit Rating BBB- (Stable) BBB (Stable) BBB+ (Stable)
Market Cap $11 billion $20 billion $21 billion
Revenue $9 billion $9 billion $7 billion
2014 Stores Built 140 190 200
Number of Stores 3,835 5,391 4,311
Typical Lease Term 15 year primary term with fifteen years of options
20 year primary term with twenty years of options
20 year primary term with fifteen years of options
Typical Rent Increases Not in primary, 5% increases in option periods
Not in primary, 10% increase in option periods
10% in lease year 11 and each option period
