Net Lease Dollar Store Report
3
www.bouldergroup.com THE NET LEASE DOLLAR STORE REPORT DECEMBER 2013 DOLLAR STORE PROPERTIES MEDIAN ASKING CAP RATES Q3 2012 Q3 2013 Basis Point Tenant (Previous) (Current) Change Dollar General 8.25% 7.26% -99 Family Dollar 8.28% 8.00% -28 Dollar Tree 8.10% 7.75% -35 MEDIAN ASKING CAP RATE BY LEASE TERM REMAINING Years Remaining Dollar General Family Dollar Dollar Tree 12-15 6.60% N/A N/A 9-11 7.36% 7.50% 7.46% 6-8 8.25% 7.70% 8.00% 3-5 8.50% 8.50% 8.60% 0-2 9.76% 9.00% 8.89% MEDIAN ASKING PRICE Median Asking Median Price Tenant Price Per Foot Dollar General $1,027,623 $113 Family Dollar $1,080,710 $120 Dollar Tree $1,375,000 $133 MARKET OVERVIEW Cap rates within the single tenant net leased dollar store sector compressed from the third quarter of 2012 to the third quarter of 2013 by 50 basis points. The dollar store sector, for the purpose of this report, is defined as Dollar General, Dollar Tree and Family Dollar as these tenants represent the largest presence within the sector. During the period from third quarter of 2012 to the third quarter of 2013, properties tenanted by Dollar General, Dollar Tree and Family Dollar experienced cap rate compression of 99, 35 and 28 basis points respectively. Despite the significant cap rate compression, the sector was still valued at a 73 basis point discount to the entire net lease retail market. This is primarily due to dollar store’s tendency to operate in secondary and tertiary markets. Dollar General properties experienced the greatest cap rate compression as Dollar General typically signs leases of fifteen years with no landlord responsibilities, making them a desirable option for a 1031 exchange investor. A key difference between Dollar General and Family Dollar, despite their investment grade rating, is that Family Dollar signs 10 year double net leases. Dollar Tree signs seven or ten year double net leases and has the lowest supply of the three tenants within the sector. Dollar stores remain a popular option for investors as they primarily offer long term leases to strong credit tenants at an attractive price point. Additionally, with rapid expansion plans, the supply available within this sector when compared to other net lease tenants is abundant. Dollar General, Dollar Tree and Family Dollar properties have a median asking price of $1,095,000 equating to a median price of $103 per square foot. Strong investor demand is evidenced by the narrowing of the asking versus closed cap rate spread. In the third quarter of 2013, this spread compressed to 19 and 18 basis points for Dollar General and Family Dollar respectively. Although there is increased demand for the entire sector, newly constructed dollar store properties are in the highest demand. Dollar store properties built after 2012 are priced at a 100 basis point premium over the entire dollar store market. The supply for new construction dollar stores will continue to increase as over 1,400 stores are projected to be built by the end of 2013. The single tenant net lease dollar store sector will continue to remain active as private investors seek properties with long term leases, investment grade tenants and attractive price points. However, as the economy slowly improves, there is some investor concern about the oversaturation of dollar stores given their rapid expansion in recent years. MEDIAN NATIONAL CLOSED CAP RATE SPREAD Tenant Closed Ask Spread (bps) Dollar General 7.81% 7.62% 19 Family Dollar 7.99% 7.81% 18 Dollar Tree 8.20% 7.92% 28
description
net lease report covering the dollar store sector
Transcript of Net Lease Dollar Store Report
www.bouldergroup.com
THE NET LEASEDOLLAR STORE REPORT
DECEMBER 2013
DOLLAR STORE PROPERTIESMEDIAN ASKING CAP RATES
Q3 2012 Q3 2013 Basis Point Tenant (Previous) (Current) Change
Dollar General 8.25% 7.26% -99
Family Dollar 8.28% 8.00% -28
Dollar Tree 8.10% 7.75% -35
MEDIAN ASKING CAP RATEBY LEASE TERM REMAINING Years Remaining Dollar General Family Dollar Dollar Tree
12-15 6.60% N/A N/A9-11 7.36% 7.50% 7.46%6-8 8.25% 7.70% 8.00%3-5 8.50% 8.50% 8.60%0-2 9.76% 9.00% 8.89%
MEDIAN ASKING PRICEMedian Asking Median Price
Tenant Price Per FootDollar General $1,027,623 $113
Family Dollar $1,080,710 $120
Dollar Tree $1,375,000 $133
MARKET OVERVIEWCap rates within the single tenant net leased dollar store sector compressed from the third quarter of 2012 to the third quarter of 2013 by 50 basis points. The dollar store sector, for the purpose of this report, is defined as Dollar General, Dollar Tree and Family Dollar as these tenants represent the largest presence within the sector. During the period from third quarter of 2012 to the third quarter of 2013, properties tenanted by Dollar General, Dollar Tree and Family Dollar experienced cap rate compression of 99, 35 and 28 basis points respectively. Despite the significant cap rate compression, the sector was still valued at a 73 basis point discount to the entire net lease retail market. This is primarily due to dollar store’s tendency to operate in secondary and tertiary markets.
Dollar General properties experienced the greatest cap rate compression as Dollar General typically signs leases of fifteen years with no landlord responsibilities, making them a desirable option for a 1031 exchange investor. A key difference between Dollar General and Family Dollar, despite their investment grade rating, is that Family Dollar signs 10 year double net leases. Dollar Tree signs seven or ten year double net leases and has the lowest supply of the three tenants within the sector.
Dollar stores remain a popular option for investors as they primarily offer long term leases to strong credit tenants at an attractive price point. Additionally, with rapid expansion plans, the supply available within this sector when compared to other net lease tenants is abundant. Dollar General, Dollar Tree and Family Dollar properties have a median asking price of $1,095,000 equating to a median price of $103 per square foot. Strong investor demand is evidenced by the narrowing of the asking versus closed cap rate spread. In the third quarter of 2013, this spread compressed to 19 and 18 basis points for Dollar General and Family Dollar respectively. Although there is increased demand for the entire sector, newly constructed dollar store properties are in the highest demand. Dollar store properties built after 2012 are priced at a 100 basis point premium over the entire dollar store market.
The supply for new construction dollar stores will continue to increase as over 1,400 stores are projected to be built by the end of 2013. The single tenant net lease dollar store sector will continue to remain active as private investors seek properties with long term leases, investment grade tenants and attractive price points. However, as the economy slowly improves, there is some investor concern about the oversaturation of dollar stores given their rapid expansion in recent years.
MEDIAN NATIONAL CLOSEDCAP RATE SPREAD
Tenant Closed Ask Spread (bps)Dollar General 7.81% 7.62% 19
Family Dollar 7.99% 7.81% 18
Dollar Tree 8.20% 7.92% 28
www.bouldergroup.com
THE NET LEASEDOLLAR STORE REPORT
DECEMBER 2013
PERCENTAGE OF DOLLAR STORES ON THE MARKET BY TENANT
Percentage Tenant of Market
Dollar General 60%
Family Dollar 35%
Dollar Tree 5%
DOLLAR STORE MEDIAN ASKING CAP RATE BY REGION
WEST
MOUNTAINMIDWEST
SOUTH
NORTHEAST
NORTHEAST
SOUTH
MIDWESTMOUNTAIN
WEST
7.50%
8.00%
7.06%
7.00%
7.25%
7.10%
7.63%
8.50%
8.00%
6.05%
N/A
N/A
6.65%
7.50%
7.15%
DOLLAR STORE VS RETAIL NET LEASE MARKET CAP RATE
Q3 2012 Q3 2013 Sector (Previous) (Current)
Dollar Store 8.25% 7.75%
Market 7.50% 7.02%
Dollar Store Discount (bps) -75 -73
www.bouldergroup.com
THE NET LEASEDOLLAR STORE REPORT
DECEMBER 2013
Dollar General Family Dollar Dollar Tree
Credit Rating (S&P) BBB- (Stable) BBB- (Stable) Not Rated
Stock Symbol DG FDO DLTR
Market Cap $18 billion $8 billion $13 billion
Revenue $16 billion $10 billion $7 billion
2013 Stores Planned* 650 500 340
Number of Stores 11,000 8,000 4,700
New Lease Type Triple Net Double Net Double Net
Typical Lease Term 15 years primary term with twenty years of options
10 year primary term with six twenty five years of options
7 or 10 year primary term with ten years of options
Typical Rent Increases 3% in lease year 11; 10% each option period
None in primary term; 10% each option periods
$0.50 per square foot every five years
COMPANY AND LEASE OVERVIEW
FOR MORE INFORMATIONAUTHORJohn Feeney | Research [email protected]
CONTRIBUTORSRandy Blankstein | [email protected]
Jimmy Goodman | [email protected]
Zach Wright | Research [email protected]
© 2013. 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
